Why is budgeting so valuable? How can you learn to budget? And why should you not give up? Discover a few answers for any small business.

Why Should You Budget?

Budgeting helps owners and managers put their money where it will do the most good. Rather than guessing what each portion of your operation might cost, you can look at history and compare future expectations to know and plan for the reality.

Armed with a budget, you improve the profit margin by knowing how much manufacturing, sales, or services actually cost the company. As you analyze real costs of an ongoing project, you can make adjustments in real time to avoid cost overruns. And you can put money into new development without running out of funds for everything else.

What Do You Need for Budgeting?

Budgeting, of course, is not an easy project. You'll need information about the past, present, and future of the company.

First, budgets use knowledge of what things have cost and what income you've received in the past. This makes early budgeting attempts for small businesses harder, but it gets easier the longer you're in operation. To develop a shipping budget, for instance, you might look back at how much you spent on packing materials, labor, delivery fees, and warehouse space over the prior 6 or 12 months.

Second, you'll need to know what challenges you face right now. Have the costs of raw materials risen steadily over the last year? If so, you may need to add some buffer on top of what the company has spent on manufacturing. And if the company is in a low part of its cycle, it may spend less on manufacturing now than at other times of the year.

Third, think about what you want to accomplish in the future. Do you want to hire more employees? Then you'll need to allocate more budget to payroll in various departments. Do you need to build up your online presence to compete? Finding the money in your budget for this project yields lasting benefits.

What If Your Budget Isn't Successful?

Because it's such a daunting task, not all attempts at budgeting are successful. If your early efforts haven't been very accurate, don't give up. You can improve your budgeting prowess. How?

First, recognize that budgeting and analysis is not a one-time deal. Every time you get more information, you use it to make the next budget better. If you went over budget on a sales project, analyze the variances. Variances — where actual costs were over or under budgeted costs — help you make a more accurate forecast for the next project. Then, repeat the process. Eventually, you'll become a pro.

Second, seek out professional assistance. Accountants work with budget analysis all the time, and they understand how to make it work. For instance, rather than focusing on minor budget elements (like the cost of office supplies), they help you focus on changes that will get the most bang for your buck (such as avoiding overtime pay). And they provide an independent perspective on plans.

Where Should You Begin?

If you already work with a bookkeeper or accountant, schedule time to consult with them about budgeting. Don't have an accountant? Now is a good time to develop this proactive relationship. The budget analysts at Bliss & Skeen Certified Public Accountants can help. Call today to make an appointment and start improving your budgeting skills.