Success and profitability is still a viable goal in 2016 for most businesses. Our economy is still stumbling along and some pessimists are predicting another recession next year. As I have mentioned before, recession will only affect your business if you let it.
An article, last week, in the Wall Street Journal (Friday, November 27) reminded me how important a foundational budget is to business success. In brief, the Article headline read: Big Banks Cut Back on Small Business”. The article went onto say the Big Banks are cutting down the amount of money they will loan to small businesses. They claim that the cost of a small loan, say $100,000, is too expensive for the bank to make. The result is that many small businesses are forced to look outside of the bank lending and look at private sources, some which charge as much as 38% interest per year. The other alternative left for a small businesses is the use of credit cards which has become one of their prime sources of funds. (Take the time and find the article and read it)
My training as a Certified Financial Planner has taught me the importance of having a “foundational budget” for your business. This type of budget is like a Strategic Focus Plan which is used every day in your business operation. This type of budget will help plan your year and guide you in making the right choices in growing your businesses.
At its core purpose, a “foundational budget” will help you determine whether an expense is necessary or can be postponed or totally eliminated. If necessary, it will help you to look at alternative means that may be less costly to accomplish the same result.
The creation of this budget is not a complicated task; it is a focused budget looking at the critical operation of a business. It is not intended to be a bookkeeping system, which, by the way, is also important to maintain.
Most small business owners have as their main concern the acquisition of more business. Many of my blogs have been dedicated to assisting in that important effort. As one of my clients, we will always look at the development of a foundational budget integrated in our Strategic Focus Plan.
This is a good time to learn how to develop and implement this type of budget in your business. It will increase your chances for success and profitability in 2016.
In the end, it is attention to detail that makes all the difference and there is not a more important detail then having a roadmap which includes a working budget.
Nick J. Petra CFP