One of my biggest pain points as a creative entrepreneur is budgets. Don’t get me wrong, apparently, I’m pretty good at managing money. The problem is I have a hard time conceptualizing what a business budget should look like.
Here are some of the questions I constantly ask myself as it pertains to a business budget:
- How much should I be investing in my business?
- What’s a good conversion for an ad?
- Where should I be investing money?
- Do I need to make any cuts?
- When do I make those cuts?
- What’s a good profit margin?
You see, despite the fact that I work in finance, I’m not very analytical. At least not when it comes to business budgets. I’m more of a big picture kind of person. And you know what? Most entrepreneurs are. That’s why we often need to hire financial professionals, CFOs or people who are way better at analytics than we are.
This very notion came up at a recent business retreat I attended. Since most of us are creatives, we get hung up on the details of a business budget. We literally drive ourselves crazy wondering if we’re making the right financial moves.
Fortunately, there was an attendee who was far more analytical which was extremely helpful. She gave us some major insights on what some business expenditures might look like. Additionally, every person in that room ran a very successful business, so it’s not like we’re totally clueless, we just think we are (that’s a topic for another time).
Here are some of the things to account for in your business budget. I want you to know this now so you’re not surprised later. Additionally, this comes from a combination of experience and having really smart financial people in my life which is a great segue to my first point.
Budget to hire smart financial people.
As I already mentioned, if you’re an entrepreneur you’re likely a visionary. Unless you happen to have an accounting background or really dig numbers, you probably need some help. Even if you do dig numbers, it’s way easier to handle other people’s businesses than it is to handle our own. And finally, even if you have the financial skills, your time may be better spent elsewhere.
Regardless of where you fall on the spectrum of financial know-how, you’re probably going to need to hire help. Period. At the very least, you’re going to need an accountant that can help you with tax planning.
Although accountants can be expensive, they pretty much pay for themselves with the amount of money they save you. Additionally, they know every legal trick in the book so you don’t overspend on taxes. For example, I recently deposited $2,000 into a SEP IRA so that I could deduct it from the taxes I owed. I ended up getting a $400 refund as a result.
Would I have known how to figure that out on my own? Nope. My accountant not only helped me bring down my tax liability, he also helped me save for retirement. Win-win.
Depending on the size of your business, you may at some point want to consider bringing on a CFO. Since I’m not there yet, I don’t have much to say on the topic, but I do know it’s worked well for many colleagues.
Equipment and tools
No matter what kind of business you’re in, you need some kind of tools to help you run it. Even people who run businesses from their laptops need to pay for services that help them run it. This includes email marketing software, e-commerce, web hosting and a CRM. If your business deals with inventory or equipment, then you must account for that as well.
The truth is it costs money to run a business. And that’s okay so long as you have allocated for it in the business budget. It’s also okay to layer things in over time. That’s what I’ve done as a bootstrapper and while it’s taken me longer, I don’t have debt and I don’t have anyone telling me what to do.
Here’s where things get really interesting. While attending this retreat, the analytical attendee mentioned how businesses should be spending a minimum 10 percent of their revenue just on marketing.
To a beginning business owner, this sounds terrifying, but it actually makes a lot of sense. In order to keep growing your business, you need new leads. In order to get those leads, you need to market yourself.
For example, you may decide to spend money on ads because it brings you lots of new leads into a sales funnel. Some of those leads will convert into sales. So, if you’re revenue is $10K a month and you allocate $1k toward ads which covert into thousands of dollars, then you’re good.
The problem when it comes to marketing is most people don’t know what they are doing. However, that is a topic for another time. The point I’m trying to make here is that you do need to spend money on marketing in order to grow your business.
Now, what constitutes a marketing cost? This question did actually come up during the retreat. Technically, my all-in-one CRM system handles email marketing, but I would consider that more of a tool than a marketing cost. On the other hand, Instagram story ads and public relations definitely constitute as marketing.
Judging by my new friend’s benchmark, I’m investing the minimum that I should be investing. After seeing how successful my IG story ads are, I decided to start throwing in more money.
Unexpected or non-regular expenses
Unexpected and non-regular expenses used to be the bane of my business budget. After a few years of being surprised by them, now I know there will inevitably be something I have to pay for that’s not in my monthly budget.
Here are some examples from my own business:
- An annual report for the state of Florida (State fees vary by state)
- The occasional website maintenance or fix.
- A non-regular graphic design cost like a media kit or worksheet
- Web hosting which is once a year
- Auto webinar software which is also once a year
- My accountant’s fee for filing a federal tax return
- Any class I may want to take
- Tools and services that are billed annually
- Random equipment like a podcasting mic or a camera
Now what I do is reserve some money in a business savings account for these expenses. After all, I know they are coming I just may not know or remember when.
The last thing you want as an entrepreneur is to fall behind on taxes. It’s not fun. That’s why you need to make them a part of your business budget. For example, I know I need to set aside about $2,000 per month for taxes based on current profit. As an aside, this is also why you need to budget for hiring smart financial people. Just saying.
Contractors and Employees
I left contractors and employees for last because it depends on the business model and not everyone needs big teams. However, at the very least everyone needs an assistant of some kind.
The thing to remember is that hiring people can help you make more money and give you back your time. Therefore, it’s something you need to take into account in your business budget even if it means you do it slowly over time.
Knowing how to manage a business budget is an important part of running a successful business. At the end of the day, we cannot avoid the numbers, therefore, we must learn to befriend them.