Stop Wondering Where Your Money Went: Budget Your Way to Success

Ever wondered why so many small businesses fail within their first few years? The answer might be simpler than you think. In this eye-opening episode of Light Up Your Business, I dive into one of the most crucial yet overlooked aspects of running a successful business: creating and maintaining a proper budget.

The statistics are sobering – while 67.7% of small businesses survive their first two years, fewer than half make it past the five-year mark. The culprit? Poor financial planning and cashflow management. Drawing inspiration from Dave Ramsey's Entreleadership principles, I break down the essentials of business budgeting in a straightforward, practical way that even financial novices can understand and implement.

I share a seven-step process to create your own business budget, from identifying revenue streams to regular review practices. We explore the critical difference between a profit and loss statement (your financial rearview mirror) and a budget (your forward-looking financial roadmap). Through real examples from my coaching experience, including one client who discovered they were losing money every month because their pricing structure was inadequate, I demonstrate how proper budgeting can literally save your business. As John Maxwell wisely puts it, "A budget is telling your money where to go instead of wondering where it went." This episode provides the tools you need to start directing your business finances with confidence rather than wondering where all the money disappeared to each month.

Ready to transform your business finances? Subscribe to Light Up Your Business for more practical business insights, and email me at lightupyourbusinessllc@gmail.com with your questions or to share how you manage your business budget. Remember, in the world of small business, understanding your numbers isn't just good practice—it's essential for survival.

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Chapters

• 0:00 Intro to Light Up Your Business
• 1:29 Why Businesses Fail Without Budgets
• 3:15 Understanding Business Budgets
• 5:05 Seven Steps to Create a Budget
• 8:19 Reviewing and Adjusting Your Budget
• 9:28 Episode Closing and Contact Info

Transcript

Tammy Hershberger: 0:01

Welcome to the Light Up your Business podcast, the show where we dive deep into the world of small businesses. I'm your host, tammy Hershberger, and each episode will bring you inspiring stories, expert insights and practical tips to help your small business thrive. Whether you're an entrepreneur just starting out or a seasoned business owner, this podcast is your go-to source for success in the small business world. Let's get started to source for success in the small business world. Let's get started. Hi everyone, I am back for another episode of Light Up your Business podcast. I am Tammy Hershberger, and today we have a subject that's kind of boring, but it's something that is important for your business, so we're just going to do a short little podcast here about it. I want to talk about the essential topic that can make or break your business, and that is a business budget. Now, this is not going to tell you like this is a sample budget for you to use. That's extremely boring. I just want to go through some basics for you, just so you kind of understand what you need to be doing, because I have dealt with businesses in my coaching program and they do not have a budget. They're like I don't know where my money's going. Well, that's not good. That's not good. That's not going to help you survive in your business. So we're going to talk about what a budget is, why it's crucial for your success, and then I'll give you a quick kind of a step-by-step guide to building one that will help your business thrive. I wanted to say that I got this episode idea from an article from Entree Leadership, dave Ramsey. It's called how to Create a Basic Business Budget. So if you go on his website, he does a lot of detail in there. I'm just going to hit the points here, so let's go ahead and get started.

Tammy Hershberger: 1:29

So why do businesses fail without a budget? Well, there is two main reasons why businesses fail. They have poor financial planning and bad accounting. Now, that's one thing. Not everybody has an accountant and if you can, great, you should at least have a bookkeeper that's handling a lot of that stuff for you, because you should be in the field selling and ordering product and inventory and handling your employees and all that stuff. And so that is. You know, I've done that for businesses on the side because they I'm good at it, it's quick, it's easy, it's not that expensive usually to hire out, and that way you can quickly see where is your money going? How much profit am I making? You know all that kind of stuff, so we'll get into that.

Tammy Hershberger: 2:07

There is a study, let's see. That said, for small businesses between 1994 and 2020, 67.7% survived at least two years, but fewer than half of that made it past five years. So most businesses are not staying in business, right. Fewer than half of that made it past five years. So most businesses are not. They're not staying in business, right? I always had.

Tammy Hershberger: 2:27

When I took accounting class in college, the teacher always told me that a good accountant is worth their weight in gold, because making sure your stuff's being assigned to the right place, making sure you have the money that you need to run your business. Obviously, taxes are a whole nother mess that I'm not going to talk about. But you may be saying, well, why is that? Why is Pete? Why are businesses not making it? Well, the common culprit is the cashflow. I mean, if you have no money, your business is done Like. I don't care how great of employees you have, how much inventory you have, how great your building, how great your location is, if you cannot keep cashflow, your business will not survive. Many businesses don't plan strategically for their finances, leading to unexpected shortfalls and financial roadblocks. So if you want to set up your business for long-term success, you must have a solid grasp on the money that's coming in and out of your company.

Tammy Hershberger: 3:14

So what's a business budget? A business budget is a financial roadmap that basically outlines how you'll spend your money. Where is your revenue going to go over certain periods of time monthly, quarterly or yearly money? Where is your revenue going to go over certain periods of time monthly, quarterly or yearly? Leadership expert John Maxwell says a budget is telling your money where to go instead of wondering where it went right. Too much month left at the end of your money. That's a real problem for most people. You should even have a personal budget. I mean, I personally budget my money as well. That way, I know how much is for God, how much is going into savings, how much is going to bills, how much is spending money it's important to see.

Tammy Hershberger: 3:47

A business budget is not the same as profit and loss. So if you don't even know what a profit and loss is, we can get into that some more. A profit and loss statement is like a rearview mirror it tells you what already had happened. So when you look at it. It's got your profits at the top, your liabilities, your expenses, and then the bottom number is how much money your business has left For what? For future investment, for more employees, for advertising, whatever right? Where a budget is looking forward. It's helping you set financial goals, to create a plan to achieve profitability. So why you need that is because a budget is more than just numbers on a spreadsheet. It's the lifeline of your business. So let's talk about why it's essential.

Tammy Hershberger: 4:30

One, maximizing your financial resources. You've got to ensure every dollar is used effectively. Two, manages cash flow effectively. Helps you avoid running out of money. You don't want to start a project and not have the money to finish it. You don't want to take a bunch of for me shed orders and then not be able to have the money to buy the materials to build the shed. That's a problem. Three, encourages spending discipline. Ensures you don't spend more than you earn. Four, keeps you on track of tax payments and financial obligations. It prevents costly surprises, let me tell you. And lastly, helps you ensure success and adapt. Allows you to track progress and make informed financial decisions. So, how to create a budget? If you've never created a budget, don't worry, we're going to get through this, you basically just need to follow these five or seven steps. I'm sorry, seven steps.

Tammy Hershberger: 5:15

One you want to find out how much money do you have coming in. What is your revenue streams, right? List all the ways your business creates income. Break it down into individual revenue streams so you can see where your money is coming from. So, for example, you may well I'll just use my window cleaning business that I had. So we had revenue stream coming in from gutter cleaning. We had revenue streams coming in from power washing. We had revenue streams coming in from window cleaning. Gutter cleaning had the best profit margins, right, but we typically did more window cleaning. So then I could kind of see where is that. Now you may have other revenue streams in your business, but list them all out. So where is all the money coming from?

Tammy Hershberger: 5:52

Then determine your cost of goods sold, which is cogs people call it. So if you sell products, your cogs cost of goods sold include everything you spend on inventory materials production. This helps determine how much it costs to produce what you sold or are selling. Then you want to list all your business expenses. Expenses are rent, utilities, software, subscriptions, marketing, payroll, anything else that's necessary to run your business. Then you want to kind of categorize them into fixed costs rent and salaries. Those are things that are not going to change every month. And then you have your variable costs marketing supplies, materials right, that stuff's always fluctuating. Break that down.

Tammy Hershberger: 6:31

Then you want to do estimated income and expenses. So if your business is new, make an educated guess based on the industry that you've researched. If you have historical data like I've been in business nine and a half years, nine years we have consistent I can look at the last 10 years, nine years and see consistently, yes, things are increasing every year but I can get a pretty good gauge of what it's going to cost me. And then so you want to get that kind of figured out for realistic estimates. And some people call that a rolling budget, where you'll put the whole year on one spreadsheet, from January to December, and you'll kind of estimate how much rent's going to cost and how much utilities are going to cost and how much inventory I may need and how much payroll cost is going to be, how much insurance. And then you, as the month goes, you put real numbers in there to start to refluctuate that.

Tammy Hershberger: 7:19

Calculate your projected profit or loss. Use this formula. So revenue minus expenses, minus cost of goods equals your profit or your loss. Hopefully you're profiting. A loss means you're in the hole. It'll help you to see if your business is on track to make a profit or if you need to. You know, raise prices, cut expenses, all that kind of stuff. You can't be in business losing money. It's not going to work.

Tammy Hershberger: 7:41

Then you want to review that budget regularly, check your budget at least once a week to ensure you're staying on track. So then you want to ask yourself are you meeting your revenue goals? Is my sales team selling what they need to sell? Do we need to adjust spending? Are we spending too much money on something? Is there things we can cut? Is there things we can cut back on? You know, insurance is a good example. Every year I get a new quote. I check around because if it's going to be a lot cheaper somewhere else and it's the same product or better, I'm going to switch and then review monthly by comparing your budget numbers to your actual income and expenses to see, because sometimes you estimate and then the numbers way off the chart and you have to figure out what just happened. Sometimes you estimate too high. That's great More money left than you thought and then work towards a long-term budget.

Tammy Hershberger: 8:25

Once you've successfully managed a one-month budget, start planning for the next few months, gradually expand to 12 to 18-month budget that's kind of the rolling budget to create a clear financial roadmap. Adjust and refine your budget as you gain a deeper understanding of your business finances. So remember, creating a business budget isn't just a good idea, it's necessary for your success. I am telling you, and it's eye-opening I work with one client and they didn't have a budget. We did a budget and they realized they're losing money every single month. So then we went really detailed and got into their product they're offering and we realized the product they're offering they're not charging enough. So then we had to start raising prices to get them out of the hole, because they couldn't figure out why the money was all gone. You really got. You live and die by your numbers, people. You've got to dig into your numbers. When you understand your finances, you gain the power to have strategic ability to make those decisions and drive your business forward. It all comes down to numbers. The better you manage them, the better your chance of success.

Tammy Hershberger: 9:24

So if you found this episode helpful, please share, like and subscribe to Light Up your Business podcast. Again, we're on YouTube now with video, as you're seeing. Join the conversation. Let us know how do you manage your business budget. Send me an email. Let me know if you have ideas for future episodes.

Tammy Hershberger: 9:39

If you want to come on the podcast, if you live in Junction or Colorado and you can get here, come in the studio, we'll have you live. If you can't, we can do a phone interview with you. We'd love to come. Bring you on talk about your business. You can email me at lightupyourbusinessllc at gmailcom. Thank you for listening and we will see you next time. And remember, in the world of business, every success story begins with a passionate dream and ends with a strategic billion-dollar handshake. Stay ambitious, stay innovative and keep making those deals that reshape tomorrow. Thank you all for tuning in and until next time, remember. Proverbs 3, 3 says let love and faithfulness never leave you. Bind them around your neck, write them on the tablet of your heart. That way you will win favor and a good name in the sight of God and man. And remember if you like what you heard today, click the follow button so you never miss an episode.