Budgeting: A Transferable Skill from Home to Entrepreneurship

In many ways, running a small business is like managing your home. Both have a similar primary reason that drives you to invest your time, energy and resources to create, build or buy something to keep it going. It’s that feeling of having to sustain your livelihood (and your loved ones’), improve your lifestyle and provide a service or product that you are proud of to make life better for others. However, to create and maintain your business or home, you must master the skill of budgeting – it’ll help you establish a safety net that can come in handy on a rainy day.

Let’s begin by putting some entrepreneurial context to the skill of budgeting. According to the Merriam-Webster dictionary, budget is a noun (a plan for expenditures and revenues), an adjective (i.e. a person on a budget) and a verb (actively allocating resources and expenditures). Therefore, you (the person that owns a small business - the home of economic sustenance for entrepreneurs) must develop a plan to actively allocate the expenditures, revenues as well as potential profits/losses of said business. Most start-ups in the U.S. can’t rely on having a rich daddy for cash flow. So, if you’re thinking about launching your own business to sustain your family, part of your plan should include the following 4 budgeting considerations:

1.  What are your expenses?

Expenses are the financial responsibilities that must be paid by your business. It’s just like the monthly expenses that you pay to maintain your home. Some are fixed or the same amount each month (i.e. mortgage or rent, HOA fees, etc.) and others are variable expenses that may fluctuate each month (i.e. utility bills, groceries, etc.). Fixed or variable, you need to plan for how you will fulfill those obligations. You also need to consider the monthly expenditures that support your household or business to remain sustainable (i.e. health insurance, car payments, cell phone service, etc.). If you don’t know for sure how much your expenses are, you can begin by listing all the expenses (fixed, variable and complementary) needed to run the day-to-day operations of your small business (and household) as well as how much you need for future growth (and retirement). 

2.  Where is your revenue coming from?

In a household, the revenue may be the paycheck that comes in from your job, side hustles or a combination of you and your partner’s income. It is the same for your small business – revenues can be secured from a variety of sources. However, you must look at all the potential revenue streams or ways in which money comes into your business. Are you selling one or more products? Are you providing a service? If so, are you billing by the project or a monthly retainer? What are all the viable ways of bringing money into your small business on a monthly, quarterly and annual basis? Have you explored all possibilities? Start by listing your potential sources of revenue (keep it legal), the monthly amount you can receive from each one, and the timeframe you expect to have this money actually coming into your business. 

3.  What is the timeframe for your budget?

Most businesses prepare annual budgets for the entire year. However, it is highly recommended to break those budgets down to manageable, more short-term, time-frames such as monthly and quarterly. If you make projections on your expenses and revenue by conservatively adding 20% and reducing by 10% to each respectively, you can determine if there are any shortfalls within a given month. This allows you to not only monitor how much money you have coming in and going out in the short-term, but it also will help you see where you need to make adjustments to meet or exceed mid-term projections for long-term sustainability.  

4.  Do I do it on my own or seek help?

Budgeting is merely the first basic step to achieve financial health for your home or small business. The same way you would seek out a mortgage lender, if you were trying to get a mortgage to buy a home, as a small business owner you want to have financial assistance to help manage business. Engaging a Certified Public Accountant (CPA), bookkeeper or online software to help you manage your account payables (expenses), account receivables (revenue), equity, taxes, business credit and other aspects of your small business’ financial health is highly recommended. It’s also extremely important to establish and build a relationship with two or more banks so you are not trapped into giving into choosing from a limited scope of financial services. For more information on managing our business’ finances, check out the Small Business Administration’s website page on this topic, https://www.sba.gov/business-guide/manage-your-business/manage-your-finances.

It’s exactly like when managing your own finances at home. Good cash flow and good credit determine what you can get, how much you pay and sets you on the path to financial health. This also applies to your small business and exercising the transferable skill of budgeting is essential for long-term sustainability and growth. No matter what’s going on, it’s never too late to begin crafting a budget and creating a safety net for your family and your small business. 

Here’s another useful resource! https://www.score.org/blog/how-set-and-maintain-budget-your-small-business