How to Use Your Small Business Budget as a 'Living Document'

I know how daunting budgeting can be. When I first started out working as a consultant and freelancer over five years ago, I did not even have a real budget to speak of. I figured I would just start picking up work where I could find it and hope for the best. From talking with other "small operators," I know that my initial approach was not unique. It didn't take long, however, before I realized that I needed to get my business finances in some sort of order AND I needed to set realistic and inspiring goals-that is where a budget became a primary tool.

In addition to running my own business, I have also managed nonprofit organizations and worked with many start-ups and dynamic entrepreneurial small businesses and one of the key things I have learned is that a budget needs to be a plan and it needs to be as accurate as possible, but it also a living, changing, and evolving document. There needs to be some flexibility and "movement" in a budget to make it truly functional.

Some small business operators find that making a year-long budget (at least in the beginning) is too overwhelming and difficult to anticipate costs and income. Consider making a 6 month or quarterly budget and then scheduling in the time to revisit and adjust the budget with new, realistic numbers. You may find that there are expenses you had no way of predicting (you WILL find that there are expenses you had no way of predicting) and as you go along, you will learn more about the budgeting process and gain more skills.

Remember that a budget is a plan, not a promise. Keep your budget in a handy form (a simple spreadsheet for a small business is often quite sufficient) so you can update it regularly-this way you know if you are spending over-budget on paper supplies or that there is a chunk of money budgeting for training expenses that hasn't been touched by October. It is the comparison of actual income and expenses to budgeted income and expenses that will make your ongoing budgeting most accurate anyway. It will help you to see trends, anticipate fluctuations and make adjustments to sales efforts to fill in where cash flow and revenue are historically low. USE the budget as a living, useful, changing tool and your small business finances will seem much more manageable.

Also from this contributor:

Use Strategic Planning to Define Purpose and Objectives

Managing a Small Nonprofit is Like Managing a Small Business

Five Tips for Creating a Budget for Your Home Business