How to Create an Effective Budget

Apr 12, 2013

This blog post was written by Doran Fluckiger, Wyoming Entrepreneur SBDC, SouthwesStaff photo doran recd 8 28 12t Wyoming Regional Director.


A small business owner faces a list of struggles every day just to stay in business. Small businesses find themselves working hard to generate revenue and make a profit. In order to address the financial struggles of small business owners, you must first understand and identify the problem.  Budgets can be an effective way to quickly pinpoint where expenses are high and revenues are low. 


Small business owners want to know that every aspect of their business is functioning correctly. As a result, some may try to set goals for every aspect of their business. Instead, set one goal to quickly measure the same result.  For example, instead of creating a goal to know if inventory sales increased, and how much the inventory costs increased; combine both goals into how much profit was created from inventory sales. If profits decrease then costs may have increased, and if profits increased sales most likely increased as well. Fewer goals are easier to manage and if done properly can give you the same result as several goals. To be most effective goals must be measurable and obtainable.


Consistent Record Keeping
Measuring success of a small business is dependent on consistent and accurate record keeping.  Bookkeepers must assure that they record transactions the same way for every entry.  If transactions are coded differently from month to month it will change the outcome of your results.  Management cannot implement the correct changes to the company if the data is recorded inconsistently. 


Time Management
Budgets tracking every detail of the company are great.  However, if the budget cannot be updated on a regular basis because it is too large to maintain, it will not help your company. Simple budgets should be created to pinpoint problem areas that may need improvement. This saves time and helps create budgets that quickly and clearly reflect results.  Be sure it is easy to read, allowing business owners to quickly understand if the business goals have been met.   


Implement Changes
The end result of a budget should provide the guidance to make immediate changes that will generate greater profits.  If a budget does not provide information to improve business operations it is useless.  Overall the budget should capture areas of strength and weakness allowing small business owners to implement cost saving changes.

Tags: Budget
Category: Business Planning

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