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Budgeting With Bookkeeping | Supporting Strategies

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Build Next Year's Budget With Professional Bookkeeping

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Planning to grow your business in 2022? Create a budget that will help you set realistic goals — and then reach them.

There's more to updating your annual budget than changing the "2021" to "2022" at the top of your spreadsheet.

You also have to determine how much you plan to spend overall — and exactly where you intend to spend it. Doing so requires establishing specific, attainable goals for the coming year. Once you've done that, you can set out to create a budget that will help you achieve those goals.

Goal Setting: Put a Number on It
Broadly speaking, every business owner has essentially the same goal for 2022: to grow their business. That goal is so broad, in fact, that it has little meaning. You can't move toward a goal unless you can identify it, so the first step is to set the goal by picking a realistic number.

"Realistic" is the key word there. Sure, it would be great to grow your revenue by 200% in 2022. However, if you haven't done anything in recent years to warrant that level of optimism, setting such an overly ambitious goal is simply setting yourself up to fail.

Step One: Compare Last Year's Budget to Your Actual Performance
Intelligent financial decisions start with good financial intelligence. The first piece of intelligence to consider is your 2021 budget. Comparing last year's projections to actual performance is the logical starting point for building a 2022 budget.

If you don't already have professional bookkeeping support, you'll need it. Accuracy is critical. If your 2021 numbers are off, then your comparison of actual performance vs. budget projections will be as well.

Once your bookkeeper has confirmed your books are in order, you'll have a trustworthy baseline for comparison. Now you can take a closer look at the actual performance in every phase of your operation. If your actual numbers were significantly over or under budget in different areas during 2021, you need to figure out why.

Are You Using the Right Type of Budget?
After reviewing your 2021 budget, the first thing a professional bookkeeper will be able to tell you is whether you're using the right type of budget for your business' level of maturity.

That's right: Not all budgets are the same. Most startups use a zero-based budget. That basically means you start with a clean sheet of paper (or, more accurately, a blank screen) and add up everything you think you're going to spend in the coming year. That number, plus an additional 10% or so to cover unexpected expenses, is your budget.

If you've been in business for several years now, it's time to transition away from a zero-based budget (which is exhaustive and time-consuming to create) to a run-rate budget. That makes it much easier to make comparisons (and adjustments) on a line-item basis because it's based on your company's performance to date.

Addition, Subtraction or Both?
In most cases, business growth is a result of increasing revenue while also managing expenses. By sitting down with your bookkeeper, you can pinpoint which tweaks are necessary for you to achieve your desired level of growth. Do you intend to increase your customer base in 2022, for example? If so, by how much? Your growth over the past few years should give you a good indication. If you grew your customer base by 5% in 2019, 3% in 2020 and 4% in 2021, then 3% would be a reasonable target for 2022 if you stay the course.

But could you increase that figure with a marketing campaign? And what would be the cost of acquiring each new customer? As the founder of a successful B2B organization put it, "If I know each new customer is worth $3,000 to me, then I'm not afraid to spend $1,000 to acquire a customer." Bear in mind, however, that a significant increase in your customer base could require a proportionate increase in staff, materials and support services, so you'll have to factor those increased expenses into your budget as well.

Expenses can also rise for reasons beyond your control. If your costs for certain materials were higher than expected in 2021 due to unanticipated price hikes, you'll have to figure out whether those hikes were an aberration or if they could be ongoing. Supply chain interruptions are projected to continue for the foreseeable future; your 2022 budget must account for this.

That's not to say you simply have to accept higher costs. Dig deeper. Could you use alternative materials to build your product? What about a different supplier? These are the kinds of decisions that, taken together, will help you set a realistic target figure for your 2022 growth.

No Matter What, Don't Get Caught Short
It's understandable — and to a large extent advisable — to keep reinvesting in your business as you grow. But it's absolutely critical when you create a budget to set aside enough ready cash to enable you to continue operating in the event of an emergency.

How much is enough? The rule of thumb is that you should have enough cash on hand to cover three to six months of operating expenses. Many businesses learned this the hard way over the past year and a half with COVID shutdowns and workforce changes.

Your Direction Is Clear 
Determining a realistic budget provides financial guardrails for your business. But it also helps you set a financial goal for your growing business — and a roadmap for reaching it. Contact a professional bookkeeper to help you get there.

Dawn Gerber

Author:

Dawn Gerber

Dawn Gerber, Managing Director, Supporting Strategies | Bradenton, Sarasota & Port Charlotte, FL, provides bookkeeping and controller services to growing businesses.

Legal and Tax Disclaimer

This website is created by Supporting Strategies to provide general bookkeeping and accounting information only. Supporting Strategies does not provide tax, legal or accounting advice, and the information contained herein is not intended to do so. As such, the information provided should not be used as a substitute for consultation with professional tax, legal, and accounting advisors, and you should consult with a tax, legal and accounting professional before engaging in any transaction.