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April 19, 2013 — A weekly look at Wyoming business questions from the Wyoming Small Business Development Center (WSBDC), part of WyomingEntrepreneur.Biz, a collection of business assistance programs at the University of Wyoming.
By Doran Fluckiger, WyomingEntrepreneur.Biz, Southwest Wyoming regional director
“How do I create an effective budget?” LeeAnn, Afton
A small business owner faces a list of struggles every day just to stay in business. In order to address the financial struggles of small business owners, you must first understand and identify the problem.
Budgets can be an effective way to quickly pinpoint where expenses are high and revenues are low.
Small business owners want to know that every aspect of their business is functioning correctly. As a result, some may try to set goals for every aspect of their business instead of setting one goal that can quickly measure the same result.
For example, instead of creating a goal to know if inventory sales increased and how much the inventory costs increased, combine both into how much profit was created from inventory sales. If profits decrease, then costs may have increased; if profits increased, sales have most likely increased. Fewer goals are easier to manage and, if done properly, can give you the same result as several goals. To be most effective, goals must be measurable and obtainable.
Measuring success of a small business is dependent on consistent and accurate record keeping. Bookkeepers must assure that they record every transaction the same. If transactions are coded differently from month to month, it will change the outcome of a business's results. Management cannot implement the correct changes to the company if the data are recorded inconsistently.
Budgets tracking every detail of the company are great. However, if the budget cannot be updated on a regular basis because it is too large to maintain, it will not help a company. Simple budgets should be created to pinpoint problem areas that may need improvement. This saves time and helps create budgets that quickly and clearly reflect results. Be sure it is easy to read, allowing the owner to quickly understand if the business goals have been met.
The end result of a budget should provide the guidance to make immediate changes that will generate greater profits. A budget that does not provide information to improve business operations is useless. Overall, the budget should capture areas of strength and weakness, allowing small business owners to implement cost-saving changes.
A blog version of this article and an opportunity to post comments is available at http://www.wyomingentrepreneur.typepad.com/blog/.
The WSBDC is a partnership of the U.S. Small Business Administration, the Wyoming Business Council and the University of Wyoming. To ask a question, call 1-800-348-5194, email firstname.lastname@example.org or write 1000 E. University Ave., Dept. 3922, Laramie, WY, 82071-3922.