“Does my small business need a budget?”

“I only have a small business, I don’t need a budget.”

“I don’t have enough money to budget.”

For many small business owners, the word “budget” is something for the bigger company – maybe they’ll have one when their business “grows up.”

What is a Budget?

The simple explanation is a budget is a plan for how you will manage all financial resources and all expenses for your business. The basic equation that you want to demonstrate in a budget is as follows:

(estimated )Sales minus (estimated) Expenses = Profit (or loss)

How to create a Budget

If this is your first time to work on a budget for your small business, you might work from the perspective of having to list cost of goods or services plus all of your operating expenses to start the process.

*How much does it take to operate your phone line?

*What is the cost of other utilities?

*How about the cost of a company vehicle, or what is the cost of transportation if you’re using your personal vehicle to also serve as a company vehicle?

*Do you need any supplies or inventory to operate your business?

*How about any employee payroll, payroll taxes or independent product or service providers?

Remember to include everything you spend money on to operate your business even if you allocate some of the expenses to “petty cash” expenses, such as parking or bridge tolls while traveling to see clients.

I recommend that you create annual budget, in addition to a monthly budget, so you can identify any expenses that you may have that come up only once or twice a year such as insurance and include them in your list of expenses. This allows you to amortize or spread the cost of this out over several months so that you can plan ahead for the expense.

As you work on your list of expenses keep in mind that these are the expenses that are necessary to operate your business. These should not be items from your “wish list” unless you want to budget in some expansion or growth. You may want to create a budget with just the necessities and another version of your budget with expansion expenses listed so that you can see the cost of both separately. With a dollar figure to work with of your total expenses you are able to set the standard for or evaluate your sales figures. If you are new to your business you may need to use the dollar amount of your expenses to help you determine what your sales need to be in order to cover all costs and show a profit. If you have been in business for a while you can evaluate whether or not you are producing a profit by looking at historical sales figures.

As you conduct business during your budget year you should compare your actual income and spending with what you estimated. This will allow you to manage your spending so that you don’t over spend and cut into or eliminate your profits. You will also be able to see if sales have met expectations in order to cover expenses and still remain profitable.

Who should Budget?

Every small business owner should budget, no matter the size of business. I have heard some small business owners say their business is too small to budget, but that is not true. If you don’t have a written plan for what your financial obligations are and how your revenue will cover those obligations and leave some money unspent, then your business will never grow. In fact, you may out-spend your revenue and put yourself out of business.

Why Budget?

Budgeting for your small business gives you control over your finances. By looking ahead to what you know or can reasonably estimate what your expenses will be, you can then make financial decisions that will keep you from over-spending, or give you the freedom to invest in the growth of your business.

When Budget?

Every small business owner should have a budget to start their business and then review it annually. I recommend that small business owners review their budget several months before the end of their fiscal year. When I say review the budget I’m talking about comparing projected budget with actual. In the comparison you can see if your estimates were realistic. You and your CPA can also plan for last minute tax strategies, or plan to implement strategies in the up coming year’s budget.

The Goal in Budgeting Remember, the goal of having a budget is to stay in control of your finances in advance. Setting the standard for your spending and revenue and having a tool to compare with actual will give you the control that you need to stay profitable. At the very least it will give you an indication of whether or not your business is actually profitable and not just busy.

Melody Campbell, Business Coach invites Small Business Owners to do an “Extreme Marketing Make-Over.” Receive her Special Report “5 Strategies that Any Business Owner can do for an Extreme Marketing Make-Over” along with having access to her blog and weekly show “Get More Business Podcast at: http://www.TheSmallBusinessGuru.com

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I’m going crazy working from home!

As seen on Yahoo Answers…

Does anyone else work from home?

I was just wondering if others here work from home and how they keep it together? 6 months ago I went from working in an office to working from home (same job) and I find myself missing the interaction with the real world. I am currently in a situation where I cannot work outside the home. So I was wondering what others do to help with the monotony? I take breaks and go for walks but then just end of feeling miserable and guilty because I should be working. How do others cope with the downside of a home business?

My Answer…

I have worked from home for over 16 years and I really love it. I have lots of interaction on the phone and through email with customers and vendors.

Here’s what I recommend:

1. Plan breaks – sounds like you may be taking “unplanned” breaks, so maybe you feel guilty because you haven’t given yourself permission. Realize that these breaks are very necessary to your optimal productivity.

2. Schedule intervals of people contact – make a phone call, go to a networking meeting, get involved in an online discussion group that will assist your work at home with information or ideas.

3. Listen to motivational cd’s or videos while you work. Depending on the level of concentration you may or may not be able to do this. If you can still get your work done while listening this is an excellent way to inspire yourself and keep you from getting bored or sleepy.

The following story is a great analogy -

There was once two men cutting wood. One man just chopped away without stopping even to eat. Finally after chopping wood all day he was done and completely exhausted.

The second man started by sharpening his ax, then he chopped for a while, then stopped to sharpen his ax. This continued until about lunch time – half way through his day. He had chopped double what the first man chopped and he was not exhausted.

The moral of the story is much more can be accomplished when you take time to sharpen your saw. It is not very productive to work yourself in to exhaustion — or bordom!

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Small Business Basics

Last week I was invited to speak to a class of seniors at a local privat school in my town. The Careers teacher had a segment to cover on Entrepreneurship. Not a surprise, but half the class came from homes where one or both parents had their own business. Let me rephrase that…the parents of these students were “self-employed.”

One of the emphasis I placed on the topic is the difference between business owner and self employed. Using Robert Kiyosaki’s book Rich Dad, Poor Dad: What the Rich Teach Their Kids About Money–That the Poor and Middle Class Do Not! as an explanation the basic concept I pointed out that self-employed individuals are still “employees” of the business; they just might like their boss better. The business owner does not usually participate in the day to day operations. A business owner hires people to do the daily operations. The owners job is to oversee the management of the operation. I think perhaps this was a concept that most of these students hadn’t previously given much thought to.

The two books that affected me the most on this particular topic of owning the business versus being employed by yourself were first of all Michael Gerber’s book The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It and E-Myth Mastery. It took a while for the “working ON your business not IN your business” to finally sink in.

If you don’t have these books you should add them to your library.

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Home Based Business & Home Life

I have a client that I’ve recently started coaching who wants to start a business. She has a great product and great idea for the delivery of the product. She’s been testing the product to see if it’s market worthy. The problem is that she can’t seem to get out of this phase of her start up. She just keeps sampling the product with potential customers and talking about how she’s going to get her business started soon. She went out and bought shelves and containers for the raw materials and has gotten herself pretty well organized, but she has no plan in place for how she intends to market this product to the public.

Whenever we talk she acknowledges that the next step is for her to put together a business plan so she has everything all laid out as to how she will produce the product and take it to market. She keeps telling me that she has no time. In reviewing her time management and priorities it seems that she is still determined to do everything herself. She wants to operate this business from her home yet she refuses to set regular business hours.

My client is a very hard working woman and dearly loves her family, and she won’t set aside any time to focus on her business. She proudly describes all that she does in a given day, including working a part time job mostly for mental stimulation.

Several years ago, when I was still getting established in business, I searched for the most successful business woman I knew in town and asked her to be my mentor. The woman I chose was a very successful realtor who was about 30 years my senior. She had raised her family quite successfully while building her real estate business. I was impressed that she had a well rounded family life as well as an extremely successful career as a realtor. The most important thing that she impressed on my mind was this:

Don’t do anything in your business that  doesn’t directly make you money, that you can pay someone a reasonable hourly wage to do for you, so that you can be freed up to do whatever it is that brings your business money.

With that information I hired an office manager to operate the entire order processing and fulfillment side of my business so that I could focus on sales. Believe me this was not an easy thing to do. I went through a dozen or so employees that couldn’t keep up with the pace and accuracy my business required. But at last I found someone who ran my office like it was her own. Just having her made me so much money! I was finally freed up to sell, sell, sell. I used to sell all day long and do the order processing and bookkeeping at night. I literally worked day and night.

Not only did I hire an office manager, but I also hired someone to clean my house. It was so nice to finally not worry about my messy house when I got done with work. I had more time to spend with my family instead of working or cleaning.

Don’t underestimate this aspect of your small business management. Put your business time in perspective and only do what makes you the most money and hire or contract out the rest. I tell you from experience that it is well worth the investment of time and money to replace yourself.

Be wise and set a time limit on the hours you will spend on your business. Don’t let "urgent" things like laundry keep you from your business during business hours, and not from your family after hours. Also, don’t let your small business responsibilites invade your personal life. Walk away and the end of the business day, knowing that your work will till be there tomorrow.

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A Cluttered Mind is not Creative

Whenever I work with small business owners one on one, whether new business owners, or those that have been active in their business for a time, one of the first things I look at with them is the systems they use to operate their business.

For my own business, GiveAways Plus, I absolutely must have a well defined system for operating my business. I have a system for each order that comes in that I follow precisely so tht I am sure nothing goes wrong with a customer’s order. I follow up on each order with the factory to be sure that they have all the information needed to produce the customized product exactly as the customer has requested it and the finished goods will be delivered on the date required.

I have a system for how all of the paperwork, order acknowledgements, art proofs, and any  correspondence with the vendor or customer (usually fax or emails) are filed for easy retreival on a future date.

As I confirm that an order has been shipped I request faxed copy of the invoice from the factory so that I can immediately bill the customer and vouch the invoice to be paid to my vendor in my accounts payable.

You might be reading this and saying , "Well, of course." But I have found that many of small business owners actually conduct their business sort of randomly. These are the business owners that don’t last long, or are extremely frustrated because of the lack of progress in their business.

I can honestly say that if I neglect any of my operational systems because I get lazy or too busy, I find that the random procedures create physical and mental clutter that clog my business works and stifle my creativity.

I make it a regular practice to pay attention to anything that is nagging at my mind to get done that I may be procrastinating. I do procrastinate on those things that seem too complicated, or that seem unpleasant. I know better. I know that those things I don’t take care of eventually cause me bigger problems than if I had addressed them early on.

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