I have a new business and have modeled my budget in a very similar way to my personal budget but now I am wondering if I should be using a different method. Are personal budgets vastly different from a business in its infancy?
Dear Data Gal,
Congratulations on your new business! An exciting adventure 😊
Finance is one of those areas that is ignored at first by many businesses, because the focus is more on making money to have cashflow to continue developing and growing. I can tell you from personal experience, catching up on a few months of minimal transactions is annoying as a business owner. Even as an accountant!
The most important thing to remember is that a budget for your business is meant to help you make better strategic decisions. Think about what will allow you to spend minimal time on keeping track of the data and at the same time provide you information that is insightful.
The basic foundation of a budget applies to people as much as it does to companies. You need to spend less than you make. The easy part with business budgets, many expenses are the same month to month and easier to forecast.
The only difference between my personal and business budgets is that my personal budget is more short-term. My personal budget is usually 1-2 months in advance, things tend to change quickly and often. I would be spending a lot of time on making adjustments if I treated it the same way as my business budget. My business budget is a year out, this gives me an idea of what the minimum revenue I need to make each month to break-even at the least.
When the month is over, be sure to make time to review your financial performance. If you don't compare your actual performance to the budget, all of the time and effort you spend on tracking is not being used to its full potential. The actual record keeping, while very important in its own way, is not as useful as the information you can get out of comparing your performance. You can find that your budget isn't as realistic as you thought it was or your goals were too easy to meet. This information can give you a different perspective and allow you to be a proactive business owner instead of a reactive one who puts out fires all day.
This is quite a broad topic and you may be walking away with more questions than answers, but I'm here to help! Feel free to write in again, we can do a follow-up post about anything you be wondering about.
Good luck with your business!
If you have a financial literacy question you'd like to ask, submit your question here.
I also have a weekly newsletter where I share financial tips, updates and motivation. If you're interested in receiving the newsletter subscribe below 👇