Budgets are critical in controlling where company resources go. Budgeting is not about spending every available money there is. Rather, it is about properly allocating resources to maintain normal operations and help the company achieve its growth plans. Therefore, budgets ensure that the organization does not overspend on activities that do not help achieve its short-term and long-term goals.
However, staying within the budget is more tricky in reality than in theory. To help small businesses in budget management, here are five practical ways on how they can stick to their budgets.
Create a Realistic Budget
One of the primary reasons an organization cannot stick to the budget is that it does not realistically reflect the business’s operations. The management can adopt different budgeting methods that consider the company size, industry, age, and goals in the budgeting process. These include cash flow budgeting, incremental budgeting, zero-based budgeting, and value-proposition budgeting.
When creating the budget, always base it on historical records and not from simple estimations or gut-feel. The company can use the Statement of Cash Flows and the Income Statement to source the budget figures.
Break the budget into weekly and monthly amounts, so members are more aware of the spending limitations in shorter periods. This also makes the budget more manageable, as the company can quickly adjust if it is going over the budget.
Prevent the fear of unexpected costs by allocating an amount especially for them. Others would call this an emergency fund, and it should only be spent on truly unanticipated expenses like equipment breakdowns. This amount is under the discretion of the management, choosing such a level that they think is sufficient to cover contingencies.
To avoid using this budget on other expenses or cover up shortages, put the money on a highly liquid investment vehicle. This way, the company prevents its unnecessary spending while also giving it interest-earning potential.
Track Cash Flows Regularly
Regularly monitoring cash flows is one way of making sure that the business sticks to the budget. Comparing the actual income and expenses with the budget will help the company see whether they are on, over, or under the budget. If possible, the management should do this every day to make adjustments if necessary.
Doing bank reconciliations will also make cash flow tracking more precise. Bank reconciliation allows the management to identify cash flow items not yet recorded in the company books. It will also reveal amount errors and discrepancies which are suspicious.
Increase Budget Transparency
While the management should keep certain information to a limited number of people, the budget should not only be available to the management. Sharing the budget to employees enhances the organization’s ability to stay within the budget, as everyone will be making an effort to follow it. It also enhances transparency and productivity, as the employees will see where the company income and their efforts are being directed.
Utilize the Right Tools
Many bookkeeping software for small businesses, like KIPPIN Accounting, has built-in budgeting tools to help companies create and manage their budgets. Since the budgeting tool is already connected to the company books, creating budgets using historical data is more convenient. Tracking actual cash flows against the budget is also uncomplicated with quick report generation functionality.
With the right tools, budgeting tasks do not have to take so much time and effort to complete. Additionally, because the process is more reliable and accurate, budgeting decisions will also be more relevant.
Efficient Budget Tracking With KIPPIN
KIPPIN – The best small business bookkeeping app ensures that all your financial tasks are completed accurately and on time. Budgeting tasks are now quicker and smoother with transaction tracking and cash flow management functions. We also provide software-only solutions to automate processes, making them quick, easy, and remotely accessible.