I Don’t Need No Stinkin’ Budget

Q. I’m a small business owner on the East Coast.  I’m trying to make sure I’m spending my company’s money right.  We are expanding and I want to avoid laying off the new employees that are coming on board now.  Any tips?

A. To answer your question in detail, it would take up more space than a normal college textbook.  However, because you focused on spending, this edition is going to cover budgeting. These concepts can be applied to personal financial situations as well.

First, you need to be able to get a rough forecast of your income.  That is the driving force behind any budget.  Look at your bank statements for a good starting point.  Bank statements are like a cash-basis financial statement.  You can see income and outgo all in one place.  This gives you a good starting point as you try to identify months where you have more can than average that you can use on months that do not have as much inflow.

Next you need to have a good expense identification plan in place.  Do you use financial software like QuickBooks, Peachtree Accounting or Microsoft Small Business Accounting?  By entering and categorizing every expense, you can begin to see where you spend your money.  Are you seeing increases in inventory costs or benefit costs or supplies?  What about employee salaries?  Are you budgeting enough to handle raises for those who have provided you with the labor needed to run the business effectively.  Without records, you must make an educated guess as to the amount of these expenses.  Over time, you will again see trends and be able to determine where the “fat” is in your organization.

To make an initial educated guess, you should be searching in industry trade publications for expense estimates.   For instance,  service organizations will spend more of there income on salaries and benefits.  Manufacturing and retail would be spending more on inventory and cost of goods to produce a sellable product.

As a small business owner, you may also wish to join up with your local chapter of the NFIB, National Federation of Independent Business.  They have great resources to get owners educated on the issues in business.  They also lobby Washington on behalf of small businesses.  The US Small Business Administration is another good resource for those running smaller businesses.  They provide links to discussion on the many areas that small business owners need to keep in mind.

Final thoughts on 2008

Don’t you just enjoy the passing of an old year?  2008 brought many challenges from a financial perspective.  Large and small corporations, retailers, stockholders, investors and regular employees all felt some pain.  This post will have two major points.  First, the biggest question everyone has is why did this happen.  Last year, I was reading a book entitled “Secrets of the Temple: How the Federal Reserve Runs the Country” by William Greider.  While the book is a bit heavy to read for most people, it does a very good job of describing the role of the Fed and the economic turmoil of the late 1970s through the 1980s.  There is also some Read more »

The Sky is Falling…Or Is It?

Q. I have taken a 50% hit on my 401(k) account this year because of the market contraction.  I’m thinking of just pulling all the money out and investing in a rental property instead.  Is this a good idea? I live in the southwest where real estate has really dropped anyway. I’m not 59.5 yet either.  I am in the 35% bracket.

A. Now that is a very defeated person!  Anyone who has the slightest bit of risk in their portfolio, 401(k) or not is Read more »