When it comes to creating a budget for your business, there’s more than one way to do it successfully.
That’s right—what works for you might be disastrous for someone else. Sounds pretty obvious, but it’s because as a business owner, your personality and how you run your business is different than someone else. Even if you’re both in the same line of work or have similar business models.
Creating an authentic budget—one that works with your and your business’s personality—can help you feel more confident you’re headed in the right direction. This includes your business goals and ensuring you have enough cash to meet your obligations.
Curious how to implement one? Let’s get started.
What is an authentic budget?
An authentic budget is different from traditional budgeting methods because it looks beyond just trying to “make the numbers work.” Instead, you take your and your business’s personality and work habits into consideration. That way, you’re using the best method to help you figure out what will help your business thrive.
As in, how you can meet your short-term and long-term goals while at the same time finding an effective way to manage your money.
I know I’ve made the mistake of leaving funds in my business checking account and not figuring out what the role of each dollar should be. And when I did, it was downloading a random spreadsheet and plugging in numbers here and there trying to figure out where to best allocate revenue.
After a few months of feeling frustrated, I gave up and told myself it was my fault for not sticking with it.
The truth is, most traditional budgeting methods tend to be reactive—maybe you simply track what you spend and that’s it. Or you create an arbitrary number on your line item budget and try to ensure the numbers fit, because you’ve seen it work for someone else.
What also happens is that you’re focusing only on the numbers. For example, if you set a maximum number you want to spend on a website rebrand, you’re only looking at the price. But looking beyond the numbers helps you figure out what you hope to achieve from the website rebrand—then you can look at how much you can spend.
After all, a budget is meant to help your business, not restrict you or make you feel guilty.
How is it different from values-based spending?
An authentic budget looks at your overall business finances instead of only looking at your expenses or spending. Instead, it looks at your cash flow in a more holistic way, helping you figure out your income goals and other metrics you want to achieve in your business. As in, your business can meet its financial obligations and goals whether a business is profitable or not.
For example, if you’re looking to scale up parts or your business by purchasing more inventory, you’ll need to ensure you have the funds to do so, plus cover other types of existing expenses. That’s why it’s necessary to look at when money is coming in so you can use it to gauge a timeline for meeting goals and other metrics.
In addition, an authentic budget also considers how you are most efficient in your work and creating buy-ins from others in your business (like employees if you have them). While you still need to understand what your business values are, an authentic budget uses them to create a more nuanced process or system to help you in your day-to-day operations or for specific goals.
Let’s say one of your business values is caring for the environment. In this case you decide to donate 1% of proceeds to a cause that’s near and dear to you. That could mean opening up a separate business bank account and depositing 1% of profits and making an annual donation, or making automatic donations each month.
Think of values-based spending as the first step in looking beyond the numbers and an authentic budget as the system that helps you take it one step further.
Creating an authentic budget
Here comes the fun part—looking at your money!
Sadly, budgeting has gotten such a bad rap, but the following steps should help remedy that. Here’s how to start creating your authentic budget.
Analyze your business model
Even if you’re a Business-of-One or freelancer, it’s important to write down how your business earns income. More specifically, look at the types of activities that help you earn money (aka how you market and deliver services/products to customers) including the products and services you’ve paid to help you do so.
This will be helpful when determining what to keep, what to eliminate, and what parts of the budgeting process you should outsource.
Let’s say you mostly market your business online and you’ve been purchasing posters and business cards. Unfortunately, these items are still sitting in your closet—so it might be time to figure out how to use that money to market online or use it elsewhere.
Figure out your communication style
Your communication style is important because it shows you how you can create a buy-in for your new budget, both for yourself and any employees or contractors you hire.
A buy-in is a fancy way of saying getting everyone on the same page. That way, when you’re spending or not spending money so you can reach your business goals, those that work with you understand exactly what those goals are and hopefully be excited to help your business reach them.
Figure out whether you’re great at using words, images, or some other form of communication style to ensure you and anyone in your business understands the “why” behind the numbers.
Even if you’re the only one who works on the budget, it’s important to set aside a dedicated amount of time each month to review. If you do that, great!
In any case, I challenge you to look at it differently. Instead of only looking at what went well and what you’d change, challenge yourself to see whether you’ve clearly defined your goals and metrics for success. Did you look at your values to help you decide whether or not you’re spending in the “right” categories?
Look at past budgeting methods
Understanding what you’re currently doing can help you figure out what to do differently moving forward. It also helps you take more ownership of managing your business finances.
Once you’ve considered all of the above, use it to create a budgeting style that’s authentic to you and your business.
Here are some examples of budgeting styles:
- Allocate certain percentages to different categories
- Dedicate an account to pay all your business obligations (think taxes, payroll and debt) and the rest for purchases based on your values (or whatever else you want)
- Budget month by month based on last month’s income/salary
- A zero-based budget where every dollar is allocated for, or is assigned a “job”
Harnessing your personality
Are you someone who likes to have target goals for the week and ensure tasks are done, no matter which day it is? Or are you a bit more rigid and love to color code your tasks and ensure that every single thing is systemized?
Understanding how you operate will mean you’ll most likely stick to your budget. Reflect on past budgeting methods that didn’t work. Is it because it was too rigid and you’re someone who likes to go with the flow more? Or you haven’t clearly communicated why you’ve slashed the marketing budget and started spending less?
Having these insights means you can pivot from what doesn’t work to something that does. For example, you love looking at visuals but are convinced that looking at numbers from month to month is the right way to go about budgeting. You end up completely overwhelmed!
Instead, consider using the numbers to create a graph—one that represents expenses and one that represents income. That way, you can visually see if one bar is going higher and compare what’s going on overall.
Once you have a clear picture (literally) of what is happening, you can then look into the specific expenses to see what’s the most efficient use of your dollars.
The point is to figure out how you operate best and use the data from your budget in a way that’ll help you take action. Here’s where you can create benchmarks and different ways to track your business goals.
Creating an authentic budget may feel strange because you’re not necessarily looking for outside guidance. Rather, you’re looking within your business and who you are as a business owner to work in a way that’s specific to you, and you only.
Have fun with it and remember that you have full control—change any parts of your budget as you see fit.