Today, I’m talking about the importance of budgeting as an entrepreneur and why you need to get a head start on your annual budget for next year now.    

In this episode, I explain how you can determine what you need from a budget and how you can implement one correctly to get the most out of your finances and set yourself up for success. 

In this episode, Danielle also discusses: 

  • Why you need a budget 2:45
  • Creating a budget in the fall instead of the new year 4:13
  • Having a goal with budgeting 6:59
  • Budget to actual analysis 9:50
  • Planning for unexpected expenses 11:39

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Things Mentioned in Today’s Episode: 

Budget Webinar

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Full Episode Transcript:

Intro  0:00  

Welcome to entrepreneur money stories, the podcast for women entrepreneurs who want to dig into their money stories so they can break free from limiting beliefs around money once and for all. Hosted by Daniel Hayden, owner of kickstart accounting, Inc. This podcast is a series of real conversations about money mindset with valuable and action packed takeaways for the entrepreneur who’s building their abundant empire. Danielle is a reformed corporate CFO who’s on a mission to help real freakin female entrepreneurs understand their numbers and gain the confidence to create sustainable profits. And now here’s your host, Danielle Hayden.

Danielle  0:40  

Welcome back to another episode of entrepreneur money stories. Today, we’re going to be talking about the act of budgeting and what is different about budgeting over goal setting and why you need to have budgeting in your business. Now, we have recently begun preparing for our annual budget webinar that we do exclusively with our kickstart accounting clients. And I said that the team, we have to talk to the audience about the importance of budgeting, we can’t keep this a secret, we have to make sure everyone knows how important this is to have in your business as we close up this year, and look into next year. So as I mentioned, this is something that we do with our clients on an annual basis. So we are getting ready with our clients to do our annual webinar where we we actually get to all work together as a community, we come together and brainstorm, work through issues and problem solve, talk about opportunities in our business, and then lay out the numbers for the next 12 months together as a community. And each one of our clients walks away with an Excel document or a Google sheet that they’re able to use to monitor the progress of their business. Now, some clients use this as a way to put parameters around their spending guidelines and guidelines around their spending. And other clients use this as permission to be able to reinvest in their business. So we walk through what each of our clients need, from their budget, and then how we can implement that over the next 12 months. This is a really heavy topic. And so I wanted to share it with you, the listeners of entrepreneur money stories, so that you understand the importance of budgeting and can use the same methodology in your business. So first and foremost, why do I need a budget? The budget is a formal statement that estimates the income and expenses based on your future plans and objectives. So in other words, a budget is a document that management you as the CEO makes to estimate the revenue and expenses for the upcoming year based on your goals for the business. The budgeting exercise is integral to your business. Even if you’ve already set revenue goals, it’s important to be able to check back in with your business and see where you are in terms of profitability. Just because we have revenue does not mean that we are a healthy, sustainable, profitable business. So tracking your profitability is fundamental in making any kind of big business decision. So when we’re budgeting, we’re asking a few key questions. Do I understand the direction of my business? How can I know if I’m succeeding without planning? And let me take the time now, before the hustle and bustle of the holiday and goal setting season. So that when I get to that time, I can focus on my family, and I can focus on me personally. So this was a big thing. During my corporate days, back when I worked in corporate, I was serving the board of directors and the investors. We didn’t wait until January to create our budget. We were creating the budget in the fall during that holiday time. So that by the time we got to January, this was complete. And we did this for a few reasons. One, we want to be able to really have the time and energy to take a step back and then put the budget aside and be able to molest that really right, really think about that at a high level and ensure that this is the right budget, right? This is the right plan for my business. And then secondly, we also have to remember that just because we’re the CEO of our business, just because we’re the business owner, doesn’t mean that we don’t get to have time for ourselves and our family. So by creating this budget here in the fall, it allows us to have time with our family during the holidays. And then when we get to January, and everyone’s talking about goal setting, we know that our business is taken care of our biggest asset has been taken care of. And we can focus on ourselves personally, right? Maybe you have a personal goal that you might want to conquer in the new year. And knowing that your business plan is going to take one less thing off your mind, one less thing that you can breathe easy. So business owners ask me all the time, I hear you know a budget is important, but what exactly am I solving for with a budget, right? Like, what is the budget going to actually do for me? Right, we want to know what it’s going to do for you, the business owner. So a few things, the budget is going to help us set spending parameters, the guardrails I was speaking of before. So it allows us to say this is how much I plan on spending, I’m gonna monitor the spending, understand the return on the rate of return on my spending. But I’m not going to go past those guidelines, I’m not going to go past those parameters. other business owners need permission to spend. So for business owners, especially business owners, who are hard hit during COVID, and are listening to the talks about a recession, we might need permission to spend, right, we might be scared of the seasonality of our business, we might be scared and need permission to spend and reinvest in our business. And the best way to feel confident about our spending is to create a budget to plan and understand where you’re going to be spending the money. We can not just spend to spend, right? So I hear this term all the time, I’m reinvesting in my business. That could also be an excuse to just spend money. So are our spending initiatives aligned with our goals? Right? What is our goal, if we are in high growth mode this year, we are really creating growth in our business this year, then it would make sense for our spending to increase in areas like advertising and marketing, consultants subscriptions, right, because we need to be able to support support the growth, we understand what support we’re going to need in order to be able to grow. Next, we need to ensure that our spending is within a healthy percent for your size of business. You guys have heard me say this over and over again. And I’m going to continue to say that not all profitability is created equal. So if you are somebody who is very profitable, but working 6080 hours a week, you are not in a healthy, long term sustainable business. So we want to ensure that our spending, and our time is within a healthy percent for the size of your current business. And there’s so many different business decisions that we hear our clients making. The big one is we need to add to our team, right? I can’t grow unless I add to the team. We need to increase our salary, right? We want to have a great working team. They’re busting their butts for this small business and we need to be able to increase their compensation. We need to increase our salaries as business owners, you are not last on the list. You are not the only ones not to get an increase in your business. So increasing your own personal salary. You might be thinking about opening up a second location, or opening up a second revenue stream and cash flow problems. This is one of the number one things that I hear our clients struggling with is cash flow problems. So the budget can help us solve that. Now we talked about when the right time is to start thinking about the budget. But I want to talk about what we do with the budget once it’s done, right. So in the fall, we are going to take a step back and work on our business instead of in our business. And we’re going to plan for the next 12 months. We’re going to look at the revenue plan for how many new clients we’re going to accept each month. What is our retention rate? What is our attrition rate? What is our total revenue? What is our direct cost or cost of goods sold to service our clients? And then we’re in a plan for every single one of our operating expenses so that we have a clear plan. Now, once we’ve done that, that activity in the fall, we get to have a beautiful holiday season with our families. Or maybe it’s your busy season and you get to pour in your business and enjoy the fruits of your labor. But once the beginning of the year hits, we get to start to use our budget in real life. So when we work with our clients, we recommend checking in with our budget at least monthly. We do what we call a budget to actuals analysis and this is where we look at how your budget looks compared to how you actually did. Are you meeting your revenue goals? Are you spending more than you thought you would? Or are you not spending as much as you thought you would? And why? Right? We have to ask ourselves the difficult questions when we’re reviewing this on a month to month basis. Why are we not coming in where we thought we would?

Why are we going over these numbers? Why are we coming under? Is it poor planning, and we need to readjust the budget for the rest of the year. Are they assumptions that we’re not correct, as being scared of reinvesting in your business, right? Even though you have the budget, you’re still scared to reinvest, or despite having the budget, you don’t have the systems for accountability in place in order to help you stay within your guidelines. So you’re taking a monthly exercise starting in January. So January comes to a close looking at every single month, to see how you’re actually doing compared to budget. And then using that as an opportunity to reflect in your business. Now, I know that the thought of taking time out of your business, as you’re prepping for the end of this year, as you’re entering in quarter four, can be a lot to ask of you as a business owner, I promise you that spending this time with your money team, to reflect on the history of your business to reflect on what’s happened over the last 12 months. And planning for the next 12 months is an absolutely transformational exercise. We had a client who had a budget session with us. She knew she had a contract starting in about two months for a big project, and that she was going to have to add to her team at that point. We got together and planned all the added expenses that bringing on this new team team member would entail, she was able to really see what the added revenue of the new contract was and what she could offer this employee we walked through could we offer benefits, what additional subscriptions were going to be needed to support the new hire with this individual will be revenue generating right away? Would there be any administration staff that needed to go along with this new team member, we sat down and made a plan so that she understood the impact of the new revenue stream. When those expenses hit, she was prepared, she was ready. She had the cash set aside because she had been planning when we looked at her budget. At first she understood the numbers, she wasn’t scared to see the expenses leave her bank account, she was able to embrace the flow, right the energy, the energetic flow of money in and out of her business. Now remember, if you don’t know your numbers, you don’t know your business. Right? It’s one of my key phrases, and you continue to repeat it until you don’t drill it in. You need to know your numbers so that you can intimately know your business. And secondly, what gets measured gets managed. So if you are not measuring your plans, if you are not measuring where you’re going, you are not going to get, you are not going to manage your business in the best way, right? I want you to run a sustainable, profitable business. And the best way to do that is to know your numbers and a plan to see where you’re going so that you can manage those numbers.

Podcast lovers, I hope you’re enjoying another amazing episode of entrepreneur money stories. I had to interrupt to tell you about an exciting new tool we recently launched. If you’ve been wanting to learn how to start managing your business finances but don’t know where to start, then visit kickstart accounting to receive our new five day video bootcamp series, you’ll receive a video each day that will take you from accounting overwhelm to money powerhouse. So you’re ready to kickstart accounting All right, that’s the episode.

So remember, by creating this budget, you are giving yourself the template and data to support your business decisions. Sit down, take the time, analyze your business, create goals for the next year and really try to plan out those goals. I want to set you up for the highest chance of success for this next year. Now imagine yourself. It’s January, and we’re in the Northeast like I am. It’s snowing, it’s cold, you might be frustrated, you have to go out and shovel the snow. If you live in a warm climate, maybe you’re getting a reprieve. From the heat of summer, I want you to imagine how you feel approaching this time. The sensation you have, knowing that you’ve planned where your goals are. So everybody else is talking about setting goals for the new year. You’re looking inwards, you’re looking at what do you want to achieve personally, the personal wealth goals that you have as an individual retirement planning, meeting with your financial advisor as a family, maybe as a health goal, writing a 5k Eating more fruits and vegetables. Alright, I want you to imagine a space where you’re less stressed. A space that you have the opportunity to know that you’ve done the hard work, that you looked at where your business is going, and you put forth the plans to set yourself up for success. We are always here for you. Kickstart accounting, Inc is always here for you as a business owner. We want to be a resource for you. We created this podcast to be a resource. So if you have any questions if you need support in this exercise, you can always email support. At kickstart accounting You could send us a DM on Instagram at kickstart accounting. I know that this is hard, right? I don’t I don’t want to minimize that setting a budget for your business is hard. But we are here to be a resource for you. If you have specific questions. Know that you have helped you have a community of people and resources. It’s not too late to sign up for our budget session that will be going on on November 17. For all kickstarted county clients, you must be a client in order to be able in order to register for the budget session. So if this is something that you’ve been thinking about doing, I want to personally invite you to contact the team and I to come into our community and be part of this transformational exercise. If you liked today’s episode, please don’t forget to like and subscribe. That is how the algorithm will help other people find this valuable information.