An ineffective budget is a common problem. Here are seven suggested solutions to some typical MSP missteps when it comes to budgeting.
- Keep Clean Books: If you aren’t keeping track of what’s happening, you can’t measure yourself against a budget. To make sure you are keeping your books, outsource the task. It isn’t expensive – and you have better things to do.
- Plan Ahead: Some business owners wrongly believe a budget belongs in their heads or consists of balancing their bank accounts at the end of the month. A budget is a plan. Create a budget, even if it’s not perfect.
- Measure Performance: Even a perfect budget is a waste of effort and bytes if you don’t regularly measure your performance against it. Monthly measurement seems to work well for most businesses; fast-moving businesses may need to do it more often.
- Be Realistic: Your budget should include all expected expenses, including the owners’ salaries. Your business should pay you, and that payment should be in the budget. Include tools, contractors, rent, utilities, sales, marketing, and all other expenses. Include escalations: rent will likely go up, and tool prices may increase, especially as your customer base grows. Also, perfect budgeting is impossible, so add a buffer to your expenses. If adding all these expenses puts you in a negative cash flow situation, treat this as a problem to solve, not a budget item to ignore.
- Timing matters: Think about when you will incur expenses. If you pay $2,000 for a tool every September, include this as an expense in September. Do not average it out to $167 a month. Smoothing out your expenses gives you an unrealistic view of your cash flow and leads to unwelcome surprises.
- Figure In Revenue Growth: If you plan to grow your customer base next year, how will you do it? What costs will you incur? Plan those costs, and as you go through the year, measure your cost of acquisition. Likewise, if you want or need to grow revenue, how will you do it, and what will it cost?
- Remember Your Taxes: Your tax situation depends on several factors. Work with your tax professional/accountant/bookkeeper to determine the right way to plan for taxes. Unexpected tax bills at the end of the year are killer. Along these lines, make sure you have the correct legal entity for your business.
These seven issues come up often. I recommend considering them as you plan your budget and measure your performance throughout the year.
Heather Mathis
Heather Mathis is a partner with Start Grow Manage, and an international speaker and trainer. She holds certifications in coaching, training, and speaking from the John Maxwell organization. Check out more on Mathis’ background on channelWise.
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