13 Steps to Become the MacGyver of Small Business Budgeting

By January 5, 2017 December 5th, 2023 Tips to Improve Performance

Last Updated on December 5, 2023 by Dave Schoenbeck

Budgeting is not a sexy topic for many people. Yet, it determines the livelihood of any business. In other words, you must understand the art of small business budgeting if you want your venture to succeed.

A photo of a crowed business desktop the depicts small business budgeting

As the year is about to end, I recommend that you start tallying this year’s financial results and projecting what you expect to happen when the new year arrives. If done well, this critical task will bring great clarity and help you craft effective strategies.

Here are the fundamental steps to establish your small business budget:

13 Steps to Small Business Budgeting

1. Export your QuickBooks year-to-date profit and loss statement to Excel.
This is a relatively simple step in small business budgeting. Your Excel worksheet will give you the modeling tool to project and decide if your business will be profitable enough to pay yourself what you’re worth.

2. Make a list of all your assumptions for the upcoming year.
Though time-consuming, this step is critical to your small business budgeting process. Ask yourself questions like:

● What is your expected sales increase and gross margin increase?
● What significant initiatives do you need to achieve next year?
● Are you planning any new products or services?
● Is your rent going up?
● What is your forecast for health insurance?
● Do you need to hire new staff?
● What is your wage increase expectation?
● How will you spend your marketing dollars?
● What equipment or technology do you need to buy?
● How much does your inventory need to grow?
● What is the inflation rate for expenses?

Write an assumption for each line on your chart of accounts.

3. Dig further into your sales and gross margin history.
Sales and margin projections are much more complex and need further analysis. Break down your projections to make it simpler:

● Who were your customers this year, and what was your customer retention rate like?
● What’s the worth of your average sale?
● What new customers are you going after?
● How will you decrease your cost of goods sold or increase your margin?

Overall, these essential small business budgeting questions should help you determine what needs to change for you to drive profits.

4. Create one strategy for each assumption to ensure you attain your goal.
Wishing something to be true doesn’t make it happen. Detailing assumptions without a thorough execution plan isn’t good enough. Therefore, you need at least one strategy to hit each of the numbers you’ve set out in your small business budget.

5. Calculate your average month for each line of the profit and loss statement.
Initially, it helps to think in monthly numbers. When it comes to small business budgeting, keep things as simple as possible so you don’t start feeling overwhelmed.

6. Annualize the average for each line if you don’t have a full year.
Even if you don’t have a full year of data to work with, you can still make projections for next year. Find the average of your months, then multiply that amount by 12.

7. Review your assumptions list and project your new average month.
You can develop a lower-risk estimate for average months next year if you have a budget goal set for each month and a strategy for attaining those goals. Many of my clients work with best-case, mid-case, and worst-case estimates.

8. Add a column for each month in your budget worksheet and input the averages across.
If an average looks inaccurate, load up the months with more realistic estimates. For instance, rent is easy because it should be the same monthly. But if you anticipate needing computer equipment, the expense should be added to the month you expect it to occur.

This can be hard to predict sometimes, but it’s better to budget for things before they happen than to be surprised by things you’re unprepared for.

9. Include a comment and strategy column in your worksheet for each assumption.
It’s a good idea to give yourself a place to keep notes. If you don’t jot down some details, you may forget how you came up with the projections when looking back later.

10. Thoroughly review your work.
It’s essential to look at everything you’ve done before deeming it “complete.” Did you include everything? Did your profit projection meet your expectations? If not, you need to go back to your assumptions and estimations. Think carefully about everything that needs to change.

11. Load the new budget into QuickBooks.
When your monthly budget totals are in your software, your monthly financial review will compare what you budgeted versus what you’re spending. Any variance between the two should push you to act and identify the difference’s reasoning.

12. Hire a professional business coach to help you achieve your plans, goals, budgets, and strategies.
Seeking professional help is a good idea when you need fresh perspectives on small business budgeting and valuable tips on operating your business better.

13. Enjoy success!
If you don’t invest the time to make a plan, you can’t measure your true success. Establishing guidelines is the best way to prepare for a great year.

Small business budgeting can be a lengthy, even daunting process. However, its importance is undeniable.

I offer a free video coaching session if you’re looking for additional help with small business budgeting for the new year. Just fill out the contact form, and I’ll be in touch.

Dave Schoenbeck
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