So holidays have been celebrated and we are in the New Year. Now, it’s time to get back to work with your small business or micro business, But in what direction? This is where your budget comes into play. Hopefully your assumptions are directionally correct. But how do you measure how you are doing against your budget?
The way to measure is to have an actual to budget statement. This will allow you to see where you are compared to what you budgeted. A detailed statement with each account will help you focus in on the line items that are over budget. Now, do not assume that your small business spent when it shouldn’t. There needs to be some analysis of the transactions in the accounts that were over budget. Where these transactions necessary but out of the ordinary? These would be ok if they were unexpected but necessary expenses for your business such as a repair to a business vehicle or your office. Now if one of the business assumptions was incorrect this may cause the variance to the budget. If so this may carry out throughout the year. Sometimes what comes out of the analysis is that sometimes transactions were posted to the incorrect account and this may explain the discrepancy.
But is there a way to know which direction you are going financially before the month is over and there is no chance to correct? One would have to be proactive and even implement certain financial processes to stay on track. One thing you can do is run your actual to budget financial statement mid month to see how close you are to your budgeted amounts.
This may let you know that you are about to hit your budgets but do you still have a handle on your finances? The best way to get a good handle is to implement a purchase order system with a declining balance worksheet. You can use Excel to do this. Set up a template, enter your budgeted amount and with every purchase assign a purchase order, estimate the cost and reduce the balance. The benefit is that this allows for a control of purchases and allows you to see how much of your budget is left. When you have a tool like this it makes you more mindful of what you budgeted for these expenses and how your spending your small businesses money.
Some additional processes that may also be beneficial are to have one point of contact that is responsible for the purchase of items such as materials, office supplies and any other business needs. Also designate one day per week or per month that you purchase items such as office supplies. That way you compile your lists of items to purchase and you can eliminate shipping costs either because you have a large purchase order or you only get charged for the limited times that items are shipped per month as opposed to every time you order a couple of items.
These are some things that you can implement that can help you to stay in line with your budget and will help you better understand what is happening with your small business or micro enterprise.