In the good years that we have had, budgets were overlooked. Money was coming in and it was always possible to pay everyone and there was always money in the bank account. Times have changed and now I keep hearing people saying we should have done this budget last year and the year before and the year before that. Questions about why are we paying so much for this and why do we have a water cooler in the corner which nobody uses except when someone wants to water the plants. We had money and a water cooler in the corner looked nice.

Now more than ever budgets are critical. No longer can you rely on sales to come in to your business, you now have to go and get business. But not only do you need to get business, you need to know how much sales you need to get just to stay in business. Now that money is tighter, you must focus on why have you been spending money on items and ask are they really necessary.

For example:
You have 10 phone lines and four people who can answer them and 10 phone lines was too many in busy times, why do you need them now? Every line costs money even when it is not in use.
The mobile phone plan you signed for when you had 10 sales reps, now you have 5, do you need that many minutes on your phone paln and do you really need to upgrade to the latest phone.

The important thing in budgeting is not to cut an expense because it is an cost, but only to remove the cost because it does not generate income for you. It may cost you money to get out of mobile phone contracts you signed up for, or moving to a cheaper phone supplier may result in you having to pay a penalty to move.

The biggest expense in a business is wages. But because there are friendships between owners and employees, the owner may find it hard to make staff redundant. But if this staff is not helping generate income and you keep paying them, you will only run the business down as much needed cash is going into non productive people. At the same time if you have invested time in staff training or these people have specialised skills, it may be very hard to re-employ these people if business picks up or costly to train up new staff.

Small business owners must bare in mind that their staff are entiled to unemployment benefit and other social welfare benfits, while you the owner may be entilted to no social welfare benefits and may also be liable for the debts of the business should the business close down.

It is never to late to budget. Don’t start with the sale figures, start with the overheads of the business such as phone electricity etc, the items you have to pay whether you sell something or not. Then move on to calculating the sales required to pay for these bills. Be honest about your sales margins. All margins are now being squeezed. You may have to drop products that are unprofitable, you may have to change sales reps commission rates, you may have to cut salaries. But list all your costs as they are currently and then look at cutting them back. Look at items on a monthly basis, don’t just take an annual figure and divide by 12 months. Be detailed. Do you need seasonal staff, will your light and heat costs vary over the year, are there quiet times in the year where you can force people to take holidays.

Get a big folder and for every overhead/cost you have place a page in your folder headed up with that overhead. You will have lots of pages, but you will end up with a detailed examination of the cost of your business which you can use for reference and  for planning future budgets. Budgets are unexciting, time consuming at the start, ask awkward questions about you and your business and you may feel that it is distracting from your core need of selling. But remember you need to know how much you need to sell and at what margin just to break even.

So you just can not avoid doing a budget if you want to stay in business and know where you are going. It is better to plan for going out of business (a budget may show that it is not feasible to stay in business), rather than one day waking up and finding out that you are now out of business.