Some small, home business owners are afraid of budgeting—they think that if they write down a budget, they will be trapped, stuck, or are strapping them to something that is written in stone. Other people just get nervous when it comes to sorting out financial matters and would love to focus on other parts of the business operations instead. Still others worry that by budgeting, we are actually “counting our chickens before they are hatched” and putting our business in a precarious position. None of these are true—budgeting is a way of planning for the future of our businesses—not a promise for what absolutely has to happen.
The important thing to remember is that budgeting expenses and revenue is NOT the same thing as actually making or spending the money. If we budget for expenses that we find we cannot meet in actual real time, we can then cut those expenses or adjust our revenue projections in order to truly reflect what is going on in our business. Let’s say that we really want to increase our revenue by 20% for the coming calendar year. We can do a simple math problem to figure out what that would be and then, based on our individual business operations, decide if we need to spread that revenue out by the month, quarter, season, etc. For example—if you made $24,000 in your home business in 2007 and you decide that you want to strive for a 20% increase in 2008—you will need to boost your revenue by $4,800 in the coming twelve months. This works out to an extra $400 each month.
In budgeting, you can decide if this money will go back into the business in the form of a new purchase or marketing supplies or some other expense, or whether it will be considered profit. Now, let’s say that you increase your revenue by $150 in January and then only $125 in February. By March you are getting closer to your goal with $325. This is still added income in your business and you are still making progress—even if you are not making budget. If you have budgeted expenses to be paid with that increase, you will need to make adjustments—perhaps postpone a purchase or cut back on supplies until you’ve got enough revenue. If that increase is considered pure profit, you can put it in the bank and keep striving to make your goal.
Establishing a budget gives us a skeleton to work from in our home businesses and as long as we are reasonably conservative, we can still inspire ourselves to make growth and progress. As long as you are not spending money before you make it, you are not counting your chickens before they hatch!
Also: Budgeting Strategies–Budgeting a Variable Income
Basic Budget Strategies for Achieving Your Goals