This post is authored by Charles-Hubert, CEO and Co-Founder of Budgeto, an online budgeting tool allowing entrepreneurs to easily build business budgets. Before Budgeto, Charles-Hubert worked as a consultant for over 100 start-ups, helping them with bookkeeping, budgeting, and financing.
As an entrepreneur for the past 15 years, I have experienced the good, the bad, and the ugly. Working with over 100 start-ups and SMEs as a financial advisor – mainly in accounting, financial forecasting, and financing – I’ve witnessed many entrepreneurs struggling because they didn’t take the time to maintain a budget for their businesses. This has led me to a sad observation: very few entrepreneurs maintain budgets for their businesses. This situation is unacceptable. It’s like piloting an airplane while only understanding half of the dials; when all is well, it’s not that bad, but, when the dials you don’t understand start spinning and flashing, you crash and burn.
In business, when everything is going well, you can probably get by without a budget. The contracts are there, the costs are not increasing too much, the cash flow is good, so everything seems fine. Factors like the loss of a customer, rising raw material costs, and labor turnover, however, can capsize a business in a matter of weeks. I have seen too many ‘financially healthy’ businesses close their doors simply because they had no visibility of the potential impacts that changing conditions could have on business.
The future is not that bright
I may sound pessimistic, but we are going through difficult times, and it’s easy to see how things will only get more and more difficult. We are at the start of an era in economic history that will likely be known as the Great Inflation. Prices will increase – probably exponentially – over the next few decades. For small-and medium-sized businesses, the impact of these increases will be devastating and could include rising raw material costs, longer delivery times, bankrupt customers, and labor shortages.
To prepare for this new reality, you need full control over the basic functions of your business: accounting and budgeting. Yes, your product is amazing and the marketing is fun, but, when you run out of cash flow, you’ll no longer have anything to market.
Here’s the good news: Budgeting is easy
There is a preconceived notion that budgeting is complicated. Most entrepreneurs are not accountants or finance specialists, so how would they know how to build a budget? The truth is that many entrepreneurs are afraid of numbers. Well, maybe not the numbers themselves, but the many calculations that accompany building the budget. They believe that there are lots of rules that they don’t understand, which are, somehow, necessary for managing a budget – amortization of your capital assets, debts schedules, recognition of your revenues, and so on. And don’t even get me started on building a balance sheet, an income statement, or a cash flow projection.
Here’s the good news: it’s 2021! If you do some research and search the app stores, you can find tools that enable you to build and understand budgets yourself. Such tools can manage income tax, sales tax, employer contribution rates, capital assets categories, and any other calculations needed for a budget. These tools allow you to build five-year pro-forma budgets, to work on different scenarios, to share your budgets online, and to meet all the expectations of your investors.
The power of Xero and Budgeto
Budgeto was designed for entrepreneurs like you. When you connect Budgeto to Xero, we import your historical accounting data and automatically create a five-year budget by extrapolating trends from your past results and respecting the same accounting presentation as your bookkeeping. Not only do we do it for you, we also enable you to update your projections every month to harness the full power of a reliable business budget in real time. It’s like magic.
Obviously, you need to invest a little time into fully assimilating the extent of all the financial power you now possess, but, when you do, you’ll have control of every dial on your plane. That’s how you will survive.
Get started today with Xero and Budgeto.