8 Ways to Make a Budget WorkStaying flexible and watching cash flow are key - by Jeff Wuorio Tip: If sales, finance and other business units all seem to generate and work from different revenue numbers, it may be hard to develop a consistent budgeting framework. Consider investing in business management software that can deliver one set of numbers that everybody uses. Your business budget is nothing more than a set of guidelines for your spending and saving habits. Below, I've outlined common problems that occur with many established budgets, along with some solutions that can help you stay within budgetary guidelines and realise the benefits. 1. Accept the learning curveLiving with a budget is an education. Trimming your expenses, knowing how long a paycheck is going to last or how much of a cash reserve to keep around - working these skillfully will take some time. But you can learn to adjust a budget as you go, and what was once a guess gradually will become a more predictable and useful practise. 2. Be prepared to miss your budget estimatesThis should be the first rule in setting up a budget: knowing that your budget projections are a best guess and nothing more. For example, if you budgeted the same amount each month for long-distance phone service and your bill is consistently 20 percent more than you budgeted – say, for at least three months in a row – adjust your phone budget up by 20 percent. If the bill is averaging less than you budgeted, you can trim your phone share. To keep things in line as much as possible, try to reallocate some other area of your overall budget to account for the adjustment. 3. Work flexiblyAs with setting up a small-business budget, adhering to it often comes down to a willingness to be flexible. For instance, if your revenue doesn't match what you expected – and there's a good chance that might be the case – trim your expenses to compensate. By the same token, if you're taking in more than you anticipated, it might be time to invest in better equipment. 4. Watch your cash flowIf you want to stay within a budget, make sure that your inflow more than compensates for your outflow. Monitor your income closely to make certain that you'll have adequate funds to pay your bills, particularly if your business is prone to long lapses between paychecks. 5. Be conservativeWhen setting up your budget, it's a good idea to overstate your expenses and understate your expected revenue. That approach is also a solid strategy when making sure your cash flow is going to hold up. Look into budget savers such as telephone calling plans, less expensive office furniture and other ways to lessen the burden on your income. 6. Nurture a cash reserveThe uncertainty of budgeting – both in terms of income as well as expenses – stands as one of the biggest threats to the survival and success of any small business. While trimming expenses as much as possible is always a good idea, it's also prudent to set aside income whenever possible. If you can afford it, earmark a portion of every paycheck you get and put those funds in savings. Not only can that money come in handy for predictable expenses such as taxes, it also can prove an absolute lifesaver should an unexpectedly high bill suddenly appear.By contrast, if you're thinking about starting a business sometime in the future, start saving – the money you set aside now ultimately may help you out in ways you can hardly imagine. 7. Check your budget every monthThis is a point that I cannot stress enough. Go over your budget every month and examine your cash flow to make certain your available funds are sufficient to meet your liabilities. If you're following point No. 2, above, and adjusting your budget as you go, you'll have some sort of emergency fund to take care of monthly overruns. Use it when things cost more than you thought and put money into the contingency fund if you come in under your expected numbers. 8. Use your budget as a form of restraint, not constraint!Setting up and adhering to a solid budget is the most effective teacher of fiscal discipline there is. But don't be shy about deviating from your budget on occasion should something truly warrant it. It's often impossible to budget for a valuable last-minute seminar or a trip to a trade show to make valuable contacts. If you are too rigid with your budget, you'll refuse to spend when you really should. If you've put in the work and created a business budget, follow it! If you don't, you'll lose the benefits that you planned for.
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