Episode Transcript
[00:00:00] We are having a series. About financial reporting on financial Snickens. This is going to be the first episode. So welcome to financial Snickens. I'm your host, Alisa McCabe. And today we are going to be talking about budgets. So if you haven't started a budget yet for your company, Do you know when the best time to start is?
The beginning of the year is a great time to be thinking about these because we're thinking about what are our resolutions for the year? What do we want to accomplish in this year? Everybody does their new year's resolutions. Like, Hey, I'm going to lose 10 pounds. I'm going to save a million dollars.
That's what budgeting is about. So we really need to think of budgeting for small businesses as a powerful tool that is going to help steer your business towards growth and success. So when we talk [00:01:00] about this budget, we want to make sure that it aligns with your business goals and your strategic. Plans.
So what we're going to talk about is we're going to guide you on creating this impactful budget and it is going to serve as a road map for you for growth. Look, I'm super passionate about budgets because it is about planning for the future and it can help you ensure the success of the goals that you are putting together right now.
So a successful budget begins with a clear understanding of what your objectives are. So something that you really need to start thinking about is what are you going to do this year? What do you want to do? Do you want to increase your revenue? Do you want to expand your product line? Do you want to enter a new market?
So these things all require planning to be successful. [00:02:00] Things don't happen on hope, which Something that we talk about. So what does what happens here? So does this is this are these strategic objectives ensure that every dollar is spent, and it contributes to the overall growth of your venture. So start with those things in mind.
So what this does when you create this budget. And you have your goals and you set up your budget to achieve those goals. It helps you to have informed
decision making. So a well crafted budget will empower an entrepreneur to make informed decisions. And by having this detailed breakdown of what your income and expenses should be.
Given what your goals are, you can identify areas that you can put your resources into [00:03:00] and it helps to ensure that your decisions are grounded in financial prudence. So let's get started. How do you create a concept of a comprehensive budget? First, let's identify all your potential revenue sources for your business.
So are these product sales, are these service sales, are they partnerships or any other income generating activities? We have clients that have referral sources. That bring them income. What percentage of income is that going to bring? Is it something they want to focus on? Or are there other areas that they want to get into?
So it could be their main line of services can actually expand and that's where they want to focus. The next step is after deciding what your, your income goals are and what your lines of revenue are, is to distinguish between what are your fixed expenses and what are the [00:04:00] expenses that go up and down in relation to the revenue that comes in.
So if you're trying to think about this in accounting terms, they use the words fixed and variable expenses. Now most, most entrepreneurs are not accountants. So let's think about this in a way that what are things that don't change no matter how much your sales go up and down, those things are rent or utilities.
They remain constant throughout the life of your company. And no matter what happens to the economy or what happens inside, those things remain constant. But variable costs like marketing, employee bonuses, those things will fluctuate based on business activity. So if you think about what things go up when your sales go up and what things go down, it'll help to give you an idea of what those two buckets are.[00:05:00]
And it's actually a crucial. Distinction when you're going to allocate resources because the next thing we're going to do is we're going to allocate resources and this is your plan for people and money because those are your resources that you need to focus on about where things are going to go. So you need to figure out what resources.
You need based on your business priorities. So you're going to identify key areas that contribute directly to your growth objectives. Those areas that you've
decided you want to grow and then you're going to allocate those resources accordingly. So whether you're invested in marketing, that's going to require more money.
Or does it actually require to allocate people towards your marketing objectives? Do you need to invest in technology? Is that going to help you get to those objectives? So let's allocate more money [00:06:00] to that. Um, or do you need to hire? So this strategic allocation ensures that your budget is a catalyst for growth.
When we do budgets with our clients, we want to know what do you want to accomplish this year? Is it increase sales? Okay, great. Increase sales. What is that going to require of your company? Are we going to increase the marketing budget to increase those sales? Are we going to increase the sales team to increase those plans?
So that means hiring. So that means that the bucket that we have for employee payroll is going to be bigger. And you know, how do we cover those expenses? What does it look like? What's the return on that? And we talk about these things when we develop a budget. So, There's 1 thing that I always notice that small business owners forget to put in their budget and it's something that we actually have built right into our, um, employee portion of our budget.
It's innovation and [00:07:00] research. So allocate a portion of your budget for innovation and research, staying ahead of industry trends and and technology, technological advancements is essential for long term growth, making this part of your budget ensures that you will have it. You will have the resources, the money, and the people available to do these things.
We have this in our company where we have someone come in at least once a quarter, an outside expert who can teach us something new, innovation, and we allocate. To pay this person to bring us this new information. We also include in our budget that each person on the team has a certain amount of time that we pay them to go to webinars, to investigate new software.
These things are all allocated for at the beginning of the year [00:08:00] when we set our goals because we know that we need to keep ahead of what is going on. And if you put this in your budget, I guarantee you will become more of an expert in your industry because you're ready for it to be there. So something that once you do create this budget, you have figured out where you want to grow, where you want things to be.
You've figured out what your fixed costs are. What are those constant costs? And what are those costs that fluctuate? And you've decided on how much you're going to, you're going to put towards innovation and research. You got to review the budget, and I would review it regularly. I have found in my experience that reviewing it quarterly is typically the best because over a quarter there are fluctuations in sales, in expenses, in different things, but over a quarter it evens out.
So each month those things fluctuate, but over a quarter They will tend to [00:09:00] even out and you have to know that a budget is flexible and we can adapt the budget So what things happen a market evolves? Consumer preferences might shift and you need to be nimble enough to change with it There can be unexpected challenges that happen and you adjust your budget accordingly so this flexible budget allows you to navigate these changes with agility ensuring that That the business remains resilient and positioned for growth.
So effective budgeting is not about managing finances. It is about your strategic process. And it is creating a business plan, a road map. To get you to your goals and by aligning your financial goals with the business objectives, you're going to strategically allocate resources, and you're going to regularly review this to make sure that you are getting there.[00:10:00]
This entrepreneurial journey is not easy, but a well thought out budget is your compass and it can guide you through the complexities of the business and steers your company in the right direction. If you want to talk more about growing, scaling your company, talking more about financial reporting, which we love.
Head over to our website, firststepsfinancial. com, and click on the Let's Chat, and let's talk budgets. Looking forward to hearing from you.
