Every business decision has a financial impact, so it’s important to keep track of where your dollars are being spent. Using a budget can help a brand visually see what impact each decision has on their business, especially after a year of uncertainty like 2020. For example, if your team decides that they want to hire an additional three employees in Q3, it’s important to first ask “What will that do to the profitability of my business?” The same is true for scenarios that involve signing contracts with three new clients as well as losing a client. Having a budget helps you answer important questions like these and is instrumental in any decision making process.

To help you prepare for the changes your brand might be taking in the new year, here is my guide to defining and managing your budget.

The Basics
A budget is an estimation on sales and expenses for a period of time. It not only helps provide focus and direction for your plan of action, but it keeps you accountable and allows you to measure your reality against your goals.

Getting Started
To have an effective budget, it’s important to first start defining the time you want to track. In my experience, tracking a monthly budget helps to ensure that you are continuously aware of your dollars. Budgets can change month to month, and it’s important to reevaluate it regularly to identify any unforeseen expenses or profits and adjust accordingly.

Remember, it’s okay to be realistic with yourself and your budget so that your goals can be achievable. You shouldn’t project monthly sales of $50,000 if your company has been tracking closer to $5,000 a month. To avoid this, it’s often helpful to use historic data when creating your budget. This will provide a baseline for your current expenses and profits, and will help you answer questions like “Is this still a necessary cost?” Being realistic goes hand in hand with staying honest with yourself. That being said, you also shouldn’t leave out known expenses just to make your budget “look good”. Doing this will make it more difficult to adhere to a budget, as you will always be tracking against it.

Things to Remember
If you think having a budget is a one-and-done task, think again! Setting up your budget at the beginning of the year only to leave it on the back burner, will not lead to a profitable business. Your budget should be your best friend. You should be constantly checking in and making updates in order for your budget to provide you with insight into the performance of your business. Budgets are the most important financial tool your brand should have in its toolbox.

Using your budget monthly and comparing forecasts to actual expenditures, like bringing on new clients or unexpectedly purchasing new computer equipment, will help guide you through future business decisions. Staying on track will lead to hitting those profitability goals you set each year or each month. Your future self will thank you for sticking to your budget plan!

After a year like 2020, there’s no doubt that 2021 will have its fair share of ups and downs, twists and turns, and unexpected financial challenges. Take those life lessons you and your business learned this year, as it relates to finance and accounting, and plan for the new year with caution in mind.

About the Author: Louise graduated with degrees in both Marketing and Accounting, and has over 10 years of financial experience within the advertising and media industries. She started her professional career in London, England where she built her strong understanding of financial operations in a creative agency setting. Five years ago, her career path led her to the United States, where she now calls Arizona her home. At OH Partners, Louise focuses on financial and accounting operations, as well as financial reporting to guide the businesses in the right direction.