Let’s face it. Your business budget could be better. As a business owner you don’t necessarily want, or need, to start from scratch—just take a closer look at your current practices and tweak a few techniques.
We know a thing or two about what makes budgets work, so we’ve broken down ten ways you can improve your business budget to make this a banner year for your company.
How to improve your business budget
1. Use live data
The number one problem with any budgeting process is that it’s always using “dead” data to inform live strategy. Are you using a spreadsheet of data from a month (or, heaven-forbid, a year) ago? Do you know what your team spent last week? Far too many companies are setting budgets based on old data and only looking at the budgets once spending has already occurred.
You need data about what’s happening in your company’s budgets NOW. You should be able to see at a glance how much you’ve spent and how much you have left to spend. The biggest culprits are expense reports and reimbursements, which often take a full 90 days to account, leaving you further and further behind.
Try this: Sync your transactions daily, or at least weekly.
2. Budget in smaller pieces
Many corporate budgeting exercises look at the company’s finances from a global, macro scope. While this can be helpful for perspective, it makes actual use of a regular budget less practical. Think of it like this—you don’t plan meals by the year, or even by the month. It makes much more sense to manage your meals (and finances) in smaller chunks.
After creating your yearly or quarterly budget, take it one or two steps further to extrapolate what budgets should be on a micro level, including individual budget allocations.
Try this: Break down quarterly budgets to monthly or weekly budgets.
3. Switch to rolling budgets & forecasting
Once you’re using more lively data and budgeting in smaller pieces, you’re ready to bring some flexibility to your budgeting. We all learned the hard way from 2020—we have to be ready for the unexpected. A smart, effective budget is one that can roll with any changes, such as a large increase or decrease in revenue, new availability of inventory, real estate, or talent to hire, etc. Utilize rolling budgets and forecasts that take into account what is happening right now as you plan for upcoming spend.
Try this: Have a monthly check-in to evaluate the predicted budget against reality, and to make adjustments for the upcoming month.
4. Ditch spreadsheets
We surveyed over 600 finance leaders to see what accounting software they used and “spreadsheets” were listed as the second most used accounting software—only 1% behind the most used option, QuickBooks Online. Spreadsheets might be free and highly customizable (to a point) but they’re also incredibly time-consuming, error-prone, and limited. It’s time to make the switch to a high-powered budgeting software that does the budget analysis for you.
Try this: Sync your budgets and transactions in a seamless software platform.
5. Adjust budget to strategy
In the early stages, your business budget might just be aimed at breaking even or maximizing your profit margin. But as you evolve, so should your company’s budget. Your budget should be created after developing your business strategy for the next year or quarter, and directly reflect that strategy. Whether it’s growth, expanding into new markets, or saving for real estate or an acquisition—make sure your budget clearly shows what you hope to achieve.
Try this: Pick one goal for the upcoming quarter and see how your budget can get you there.
6. Expand communication
If you want your team to honor your budgets, they need to buy in. Do they understand the budget strategy? Do they feel heard in the way the budget is allocated? Take a closer look at your communication around budgeting. Be sure that the budget is accessible and well-documented, and elicit feedback from bottom-up and top-down. For example, does the marketing budget reflect what your social media specialist knows about the success of paid campaigns?
Try this: Ask your team for their input about the budget and apply it to future iterations.
7. Make a plan B and C
We’re advocates for an optimistic outlook, but we’re realists too. You can greatly improve your business budgeting by rolling out two or more budget plans, each with a different future in mind.
Build out a budget blueprint for a few paths your business might take. For example, plan a budget for your most likely scenario, one for completing your desired round of funding, and one for a quarter where revenue falls. No matter what happens—you’re ready to pivot and take your businesses wherever it needs to go.
Try this: Mock up budget plans for predicted, optimistic, and pessimistic futures.
8. Assess cash flow
It’s easy to get wrapped up in revenue and profits when creating budgets, but cash flow is an oft-overlooked metric you should include in your budget. Your business cash flow is the accessibility of liquid assets at any point, and mismanaged cash flow can kill your business even if revenue is high. Be sure that along with your budget allocations you’re indicating the liquidity of the assets and liabilities.
Try this: Use a cash flow budget to outline your cash flow for the month or quarter alongside your existing budget.
9. Try a new a budgeting method
There are five main budgeting techniques used by business owners to manage finances, and you’re probably using the budgeting process that you’re most familiar or comfortable with. If you want to improve your business budget, you might consider trying a new method to draw up your budget (even if it’s just an exercise). Some options include:
- Activity-based budgeting: Work backward from a desired goal to create a budget to meet it
- Value proposition budgeting: Assigning budgets based on the returned value of the activity, expense, or department
- Zero-based budgeting: Starting from zero, each department or activity must be justified before receiving funding
Try this: Ask team members to create a budget utilizing different methods and compare for insightful budget discussions.
10. Inspect your costs
Revenue and profits take center stage when we look at business finances, but minimizing your business cost can have a significant impact on your profit margin. Fixed costs are seen as permanent, but in reality you can decrease your business fixed costs without changing your entire budget. Variable expenses like marketing or office expenses can be difficult to budget for, leading to overspending. Lay out fixed and variable expenses and inspect them closely to look for trends that eat away at your business budgeting and financial goals.
Try this: Go over fixed and variable expenses from the last month and discuss ways to decrease each line item.