Now that you are charging what you’re worth (last month’s blog), it’s time to discuss what to do with all of that money! A budget is an essential tool for any successful business. Ben Franklin said,
“If you fail to plan, you plan to fail.”
As a teaching artist and studio owner striving to learn the ropes of running a small business, I find it particularly challenging when faced with financial obligations such as creating a budget. But it is a task that must be done and the simpler I can keep it, the better! So, what is a budget? The website, investopedia.com, defines budget as “an estimation of the revenue and expenses over a specified future period of time.” A budget can be prepared weekly, monthly, quarterly, or yearly. An important reason to have a budget is to maintain control over expenses and avoid overspending. On the other hand, a business must spend money to make money. A budget provides a tool for organizing cash flow and planning for the future. Learning what you have to grow the business and compete is another function of a budget.
In my research, I found that there two types of budgets: a static or fixed budget and a flexible budget. The static budget is simpler because it projects established levels of fixed income and expenses over a set period of time. It works best for businesses that expect income and expenses to be stable. A flexible budget is one that takes into account varying levels of income and expenses. A static budget can be used prior to the start of a budgeting period. The flexible budget helps in evaluating performance and can be adjusted as needed when income and cost fluctuate.