Not every business owner takes the time to create a budget, but everybody should. It provides a roadmap of your priorities and goals and can help you make smarter and more informed business decisions.
Looking for a great way to get an instant leg up on 50% of small business owners? It’s easier than you might think: set up and stick to a budget.
Every start-up, from Silicon Valley to your local mom and pop business should be implementing a budget to keep of what they earn, what they spend, and as a way to keep track of their business goals. Today, we’ll take a look at all the benefits of creating a business budget. Naturally, we’ll spend some time on the real estate business with real estate agent and broker budgeting, but we’ll also take a more holistic look at different types of budgets, and how they can help guide enterprises of any size.
What is a business budget and why does a business need one?
Businesses that create and stick to a budget are nearly twice as likely to grow revenue than businesses that do not budget. It’s the single best way to stay disciplined with your expenditures, so you can hire, expand, and market yourself without blowing through all your funds.
But perhaps the most important aspect of building a budget for your business is it focuses your priorities. A strong budget allows you to determine a direction for your business, and a way to track and measure your progress and performance.
When you’re starting out, many business owners are tempted to skip the budgeting phase and keep things less formal. Businesses like that may not be in business for long. As InfoEntrepreneurs.org says, “If you are planning for your business’ future, you will need to fund your plans. Budgeting is the most effective way to control your cashflow, allowing you to invest in new opportunities at the appropriate time.” Other reasons to take the time to build an accurate budget include:
- It helps you determine what to allocate resources (cash) on
- It ensures your objectives are on track to being met
- Empowers you to make more informed business decisions
- Aids in identifying potential trouble spots before they cause damage
- Helps you plan effectively for the future
- Gives you an accurate indication of staffing needs
What is a flexible budget and how does it work?
Flexible budgets can be updated during the fiscal year, to adjust to a small business’ situation, goals, and long-term outlook. By building a flexible budget, you can help your business adapt and stay agile. In times of inflation like now, it can also help you:
- Adapt to changing costs
Surging costs during times of inflation can have a severe impact on budgets for businesses of any size. While static budgets leave no room for cost changes, a flexible budget leaves you room to adjust proactively, so your business stays nimble.
- Factor in real-time data
Revenue and expense changes happen all the time for businesses. The ability of a flexible budget to incorporate real-time data allows you to make decisions based on the current revenue and expense projections. It can be a more accurate way to analyze data and decide where you should allocate resources.
- Adjust to market variances
As The Motley Fool says, “Using a flexible budget allows you to account for increased revenues, higher labor costs, and increased inventory costs during the busier months without having to adjust for months when business is slower.
Of course, static, and flexible are just two types of business budgets. Next, we’ll examine some of the other budget varieties, so you can determine which may be most relevant to your needs.
What are the elements that go into building a budget?
A budget is a roadmap for the future of a business. It can help owners and managers set short and long-term goals for growth, track revenue, expenses, and cash flow, and illustrate where costs can be trimmed to eliminate overspending.
At the same time, it can help a business determine the way forward for a year. This includes preparation for staffing up for “busy seasons” (for example, winter for a ski resort, summer for a beach club) and slowdowns (summer for a ski resort, winter for a beach club).
The following elements should be essential parts of any business budget:
- Revenue: This is all the money the business makes from goods sold, services rendered, profits related to investments, and interest
- Expenses: Costs that come with running a business including salaries, materials, supplies, recurring expenses like rent and utility bills, and financial expenses such as loans and interest payments.
- Profit: Simply put, this is your revenue minus expenses.
To build your business budget, add up your revenue sources over the course of a year. Determine what your yearly expenses will be. The difference between the two will be your profit. What happens if there’s no profit? As practicalbusinessskills.com says, “If the result (of your profit) is a negative number, your expenses are greater than your revenue. You will need to lower your expenses or increase revenue (or, even better, do both) to make a profit.”
Finally, you need to track your budget over time. That’s the best way to ensure you’re on track to reach your business goals. As you track, make adjustments as necessary to ensure you’re going to be successful for the long-term. Finally, “Success will also vary by month. During month when your business is slow, you’ll need to lower your flexible expenses. You can adjust your budget again during more profitable months.”
Budgeting for Your Real Estate Business
The real estate industry is both unique, and at the same time just like every other business. We are unique in that most of us do not work typical nine to five in an office. Instead, we’re entrepreneurs, building our own brand and business. But just like any other business, we need to make a profit, and can quite often have high expenditures. The best way to keep track of everything is by building our own budgets, to make sure we can reach our goals.
Discover.com published a helpful article designed for our industry. How Real Estate Professionals Can Set (and Stick with) a Budget offers unique insights that can help us stay on track. Some of the key takeaways are:
- Don’t overlook any expenses
“Real estate agents and brokers spend about 10% of their commission income on marketing and advertising, according to NAR. When budgeting, don’t forget the little things, like client Christmas cards, business cards, and client gifts.” Also, be sure to track your miles driving, as those are tax-deductible.
- Consider your budget your financial roadmap
When building your business, your budget is your map of how to get where you want to be. If you want to increase your income by X% year-over-year, a budget is the best way to figure out how much you’ll need to sell in order to reach your goal. It can also help you develop a marketing plan that fits your budget.
- Make sure to course correct
Review your budget often—as much as once a month—to ensure you’re on track and accountable to your budget.
Discover also includes a helpful Budgeting Template for Small Business Realtors that allows you to calculate the numbers and help put you on a path to budgeting success.
Avoiding a host of problems down the road
We’ll leave you with one last quote from the Houston Chronicle that sums up the importance of budgeting for your business—whether it’s a Fortune 500 corporation, a real estate brokerage, or an agent working as an independent contractor.
“A business that doesn’t budget sets itself up for a host of financial problems down the road. This is true for businesses of all ages and sizes. Conversely, a business that develops short-and long-term business objectives by creating a detailed business plan can create a road map for financial success and opportunities to expand.”
Now it’s your turn
Do you have any budgeting resources that have been helpful for you? If it’s a website, an app or a service, let us know what has helped you in terms of financial planning. What are some things to focus on—and things to avoid—when building your business budget?