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Laying the Right Foundation: Starting a Small Business on a Budget

Why a Budget is Important

Striking out on your own can be a very tricky proposition. Starting your own business may be exciting, but it is also inherently full of risk. Unless you get yourself going from the right foot, then the chances of achieving success are very small. Conversely, however, as long as you have the right foundation, and keep working on that foundation, success is almost an automatic thing. It is vital that you run your small business on a budget, if you aspire for long-term success.

One of the most important parts of running a business is operating on a budget. Many people (mostly unsuccessful ones) prefer “going with the flow” than with actually setting goals and budgets. For the most part, this attitude is a mistake. Unless you have an incredible memory and unnatural clear-sightedness, planning for both the present and the future is a prerequisite to success, no matter how you define that elusive concept.

Because this is an article about small businesses, then we will begin by defining success as the growth and eventual profitability of your particular business. By “growth” we mean that the business will expand, hopefully outgrowing your home and eventually participating in the corporate arena. By “profitability”, we mean that the business will become a cash-generating machine, so much so that you attain financial freedom, and never have to work a single day again if you don’t feel like it. This article argues that in order to achieve growth and profitability, discipline is needed, and plans must be made and acted upon.

Crafting a Budget

One of the most important plans you must conceptualize is that of your budget. Many businesses, even if they have great ideas and wonderful products, still fail for lack of proper planning and efficient allocation of resources. Avoid this mistake. Only a small business on a budget can ever be truly successful.

First, make it a habit to write down, on paper, both what you earn and what you spend, on a daily, monthly, and yearly basis. This is the least that you can do. Look over what you have written down and you will easily see the areas that can be improved upon, especially in the expense column. It is astonishing how many expenses we never notice until we get them down in paper. As the business grows larger, accounting knowledge might be needed. If you have neither the time nor the inclination to acquire the knowledge yourself, find someone who does.

Second, analyze the figures and determine the areas where you can cut costs, and where you should add capital. Every business has areas that generate above-average returns, as well areas that under-perform. As much as possible, redirect your resources to the projects and ideas that give you the most return. This is common sense.

Lastly, stick to your budget. A plan not acted upon is essentially useless, and a budget not followed is as useful as a page of doodles. Once you’ve written down and finalized your budget, do not make any departures from it unless absolutely necessary. Be disciplined – it’s the only way you’ll get anywhere. By running your small business on a budget, you are securing your future at less expense to the present.