How to budget and forecast for your business, the easy way

One thing we all need to know as solopreneurs is the art of a creating an accurate budget and forecast for our businesses.

It’s easy right?

  1. Open excel
  2. Enter numbers
  3. Create a few basic formulas
  4. If desired, add pretty colours.
  5. Sit back and marvel at your year end riches.

It’s that easy. Well, NO!

I’m not an accountant, nor a whizz at maths – but the one thing that I am pretty good at is making sure that those numbers on the spreadsheet end up in the bank.

As an entrepreneur THAT is the only figure that matters.

In order to know how to price your services when you work for yourself, you need to have a really good idea of what your expenses are.

Every little detail.

The truth is, when it comes to budgeting and forecasting is that it can take a while to really get a clear idea of what your income is going to be in order to be able to forecast accurately.

budget and forecast for your business Counting your chickens before they’ve hatched: Forecast blunders

Often, as solopreneurs we get excited about everything.

We are often incredibly optimistic.

Diving into something head first can be really dangerous especially when money is involved.

The reality is that none of us have the gift of foresight. There is no crystal ball telling us if something is going to fly.

So, to illustrate my point I am going to tell you the story of an ex-client from first days as a solopreneur in Dubai.

Build-it and they will come mentality

His experience is something that has stayed with me over the last 6 years and will probably continue to be a constant reminder of why caution isn’t such a bad thing when you budget and forecast.

Simon Ford Blue Banana DubaiSimon Ford was an enthusiastic entrepreneur, he was the founder of an online gift experience company called “Blue Banana”. The brand was fun, adventurous and truly reflected his personality.

When I met Simon he had an assistant, and had just hired a manager, the company was doing well.

A little while later he was approached to do a mass promotion with one of the largest petrol companies in the UAE. He jumped at it.

He then hired 8 people, got a bigger office and hired me as his marketing consultant even though I’d expressed my concerns about this “great promo” he’d just signed up for.

He insisted that he wanted my help and for me the manage the project (in hindsight I should have said no, but that’s another story).

His expenses just shot through the roof before the promotion even launched.

Fast forward 30 days and he’s stuck with the office, he fires half his staff and tells me he can’t work with me moving forward.

When forecast goes wrong

The promotion bombed.

It cost him a fortune. Suppliers were calling nonstop for payment, staff were going nuts because their salaries hadn’t been paid.

This type of costly mistake is what cost Simon his business, leaving him no choice but to flee the country with his family, leaving behind masses of debt and confused employees.

The moral of the story is that you should always air on the side of caution when it comes to trying something new.

Make sure that when you are budgeting for something that your forecast is on the side of conservative and not crazy optimistic.

(Oh, and if you hire someone to give you advice, LISTEN to them?)

An easy way to get your budget and forecast right.

There are a gazillion templates on the internet you can use. Alternatively you could just create your own.

First, start with expenses: 

  1. Open an Excel sheet
  2. Put all expenses down the left column. Include EVERYTHING from your personal expenses, to your phone rental, water, food etc … you name it. If it’s a bracket like $15-20 put the highest number in.
  3. Along the top put the months of the year.
  4. Complete all the fields
  5. Total

Forecast

  1. Below the expenses start entering your income that you already have.
  2. Take the average and include that for the rest of the months that you know you will make about that*.
  3. Total

*Not every business makes X every single month, actually very few do. There are always peaks and troughs when it comes to income – unless you are salaried.

Forecast pro-trick

Know which months you won’t be making the same level of income and ensure you offset that in the good months.

Basically your good months need to make up for the bad months – especially important if you have a seasonal business.

Budget and forecast outcome

  1. Below your budgeting and forecasting sections you’ll need to do the following basic formula: Forecast total – expenses = Amount you should have in the bank

As I have said, this is a really basic way to budget and forecast but it can help you realise where you are at, what can be changed and what needs to change in order to make your business more profitable.

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image credit: Arabian Business

20 Responses to How to budget and forecast for your business, the easy way

  1. Hi Ameena,

    It feels like you read my mind. I have thought a lot about this lately, and I’m terrible at budgets. At the moment, things are going really well, but I have no idea what will hapenn in a month or two, and no idea what to expect. That’s why I haven’t bought a new computer or anything expensive 🙂

    I guess this is what it feels like starting your first business. I do have excel and I have been adding numbers, but it feels like I’m guessing.. since this is my first month as a business.

    • Hi Jens,

      A ha – maybe I am reading your mind 🙂 Oh how I wish I could!

      You are right to be playing it on the conservative front right now – I do hope that the riches and success do pour in quickly but until then it’s better to try and make do with what tools and resources you currently have available to you.
      I know a few months ago I wanted to get a new computer, mine is only a year old but the screen is a bit smaller than I’d like BUT I then sat down and rationalised what I was thinking, my computer works just fine, it’s great actually and I can make it work for my business – so in reality my desire for a new computer was a want, vs. a need.

      Your forecasting will become clearer in the future – but the only certainty in life as an entrepreneur is uncertainty.

      Keep rocking Jens!

  2. Great Advice Ameena

    You have to know your numbers, otherwise you’re just flying by the seat of your pants and wishing and hoping that things will land right side up.

    That’s not a plan. That’s business suicide.

    Developing a great attitude and relationship around money helps too.
    I love what LaPorte says about money:
    “Don’t spend it before you get it & don’t spend it as soon as you have it”.

    Simple rules but pretty damned effective.

    • Thanks Jackie … I totally agree that flying by the seat of your pants is seriously dangerous.

      And yes, Danielle’s advice is right – it’s hard to remain composed and controlled when you get the money in but it HAS to be done.

      I see a lot of people spending everything and then some the minute they get paid or committing to some costly purchase on the “promise” that the money will come in …

      We changed our game massively 5 years ago when we decided to operate our business (and our lives) without debt. Now we have one tiny car loan which is shared between us. All our other purchase decisions are based on one question only “do we have that money in the bank?” If yes, buy, if no, wait.

      I remember people thinking we were nuts when we said we had no credit cards – it’s just one less thing to lose sleep over!

  3. Ameena, you missed a few steps on your first set of bullet points — specifically the “print” and “have fun with that pack of multicolored highlighters” steps…

    Kidding, of course. This is so spot-on. In fact, I’m appropriating this for my own personal finances, since my personal side business has virtually no expenses to speak of (I already own my computer). My fiance and I are both determined to start our married life without debt and keep it going like that. Right now with the honeymoon planning, credit cards are a necessary evil, but we’re following your example and kicking them to the curb as soon as possible!

  4. As an ex corporate finance analyst and database analytics i used to be privy to my companies budgets, forecasts etc. Even the big companies do this but on a much bigger scale. My last company i worked for did this and 80 percent of the company lost their jobs. Very costly mistake and well said..

    I always forecast everything and i sandbag my results adding in a bugger for the “UNKNOWN”. They are always there.. It really puts things in check when you do forecasts especially if you are living on savings and partial passive income like we are..

    • The unknown thing is scary isn’t it? But being conservative with your estimates and over ambitious with your expenses (and making sure you are still ok) is important.

      Thanks for sharing your experience of dealing with budgets and forecasting on a much larger scale!

  5. Hi Ameena,
    great article. I had to say that this story is little sad. But, I have to agree with you, making good moves and potential results demands much more planing. This is really useful lesson.

  6. Hello, Ameena,

    This is actually my first post to your site, as I only joined up a few days ago. May I start by saying that whenever one joins a new organisation, there is always a doubt in the back of one’s mind that perhaps you have done the wrong thing and there won’t be a good match between you and the organisation. I am sure that won’t be a problem here for two reasons.

    The first is that your comments in your broadcast email of today that led me the post above and your advice above on the numbers, completely accords with my own business practices and business philosophy.

    The second is that if Jens Berget subscribes for your advice, that is good enough for me. I have been in Jens list for quite a long time now and appreciate his advice and help.

    The reason that I am posting is this. I prepare business plans for small and mid-size companies to help them raise equity capital for business expansion purposes. I have written many plans. The tip here is to do the numbers as you suggest first, before you start on the busplan narrative.

    The number of times that I wrote the busplan with what I thought were reasonable objectives, more often than not could not be replicated into the Excel reality check. In the narrative phase, the heart leads the head, and the Excel reality check usually means substantial rewriting of parts of the busplan narrative.

    I now always do the numbers first and the story later. Experience is sometimes a tough tutor.

    sincerely,

    Graham

    • Hi Graham! Happy to see you here to share your experience! Firstly, YES, experience is the best teacher we have around. Experience really is the school of hard knocks and when you are an entrepreneur the learning curve is incredibly steep!

      Secondly, yes, the numbers first – the heart later – John (my husband and coach) and I discuss the perils of being too passionate about what you do …

      Look forward to sharing more with you and having you back to share your invaluable nuggets of info! 🙂

  7. Hi Ameena, Great post! Loving the art.

    As a solopreneur myself, I can honestly say it’s the lean months that have taught me the most.

    And, what makes all the difference between feast or famine is having a conscious intention to build abundance.

    Most of the time purchases I crave to make are ego based. When I take a moment to acknowledge this, I (usually) lose interest in the purchase.

    Since I know what my monthly Nut is, if my expenses increase or my income dips, I adjust my spending accordingly. I rock those Excel spreadsheets too 🙂

    In high income months, I put the extra goodness aside in a savings account.

    I keep an emergency fund to dip into when true emergencies happen. Man, in the last three months there have been roof repairs, a root canal, and my sweet pooch had to have surgery. Having that cash ready for these expenses is a must.

    What I learned from you today is forecasting. That’s new! To lay out expenses plus anticipated income for a year. Getting right on that!

    Thanks a million 🙂

    Robin

    • Oh wow Robin – you really have had a rough month – I do hope it’s the last of it – I always say the crap happens in 3’s – looks like your 3 is up!

      Thanks for sharing your experience – yes, the lean months are what teach us a LOT – I have been known in good months to go out and splurge, only to curse and whimper in a corner when it’s not been a long lasting surge … saving is key – but before that you need to be in a position to be able to squirrel away those pennies!

      Forecasting is an ongoing thing – I review my forecasts regularly – I have my certains in but when things look up I boost them up a bit – the thing is both budgeting and forecasting need an awful lot of attention …

      Thank you again for sharing you experience … here’s hoping your run of icky bad luck has run dry!

  8. Hi Ameena,

    Smashing post and great illustration of how it can bomb drastically if you rely on seat-of-the-pants budgeting and forecasting or put all your eggs in one potentially risky basket.

    It is important to visit your budgets and forecasts regularly because that UNKNOWN can really throw you a curve ball at any time. I prepare budget and actual forecasts for both sales and cash – a tip I picked up when I worked as a project manager in a large commercial defence company and had to prepare monthly financial statements to the management stakeholders.

    There’s always a lag between sales and cash. Sometimes by more than we’d like depending upon the client – there are a lot of clients who, regardless of your terms will hold payment to the next monthly cheque run because it’s easier for them.

    So we have four columns for each month, two each for sales and cash. We plot the sales we expect to make (i.e. posting of invoices) in the sales budget column then we put the cash either in the this months cash budget or next’s dependant upon the client and the time of the month we expect to make the sale. Actuals follow next to the budget columns and we populate these as we go.

    Monthly totals of budget against actuals feed into a simple cash flow sheet that picks up the expenditure.

    Doing it this way you can get a very clear and instant picture of how your actual performance is against your budgeted forecast and very quickly you can determine how good your forecasting is and easily identify challenges.

    We fell foul of an optimistic budget based upon an inherited client list that on the face of it held the best part of half a years income for our business which then didn’t come in and it was really easy to see that we had a problem that needed to be addressed. Incidentally we are in the process of addressing that now. I’ll let you know how we fare.

    Even the most conservative forecasts can fall foul of the UNKNOWN.

    As Robin says having an emergency fund is really a brilliant idea – some of us might not have that but I would advocate setting one up as soon as you can.

    I’m with Jens, it is almost as though you can read our minds – your posts of late have been speaking right to the heart of where we’re at. Thanks for your insight and the opportunity for sharing that your blog provides.

    Alex

    • Hi Alex! Thank you so much for sharing in detail how you do things with budgeting and forecasting …

      Firstly – I have to ask, do you take a downpayment before you do the work? I personally do everything 100% in advance – it just helps me stay clear and focused. I know it doesn’t work for every business but it saves A LOT of time chasing payments (been there, done that!)

      I have been known to budget extremely optimistically … it was horrible. Especially when the amazing booming business failed to make 50% of the forecasted totals in the first year. Experience is king in the school of hard knocks 🙂

      Glad this has come at the right time … if you want me to write about something that you need help on you know where to find me 🙂

      • We do take downpayments NOW 🙂 and for all but small jobs (which are 100% up front) we work to payment milestones with client sign off at each stage.

        Projects can still slip to the right and then we need to adjust our forecasts accordingly.

        I expect that our forecasting and budgeting will become more simplified and streamlined as we get more of the right type of business.

  9. Ameena,
    Loved the email. You should take the risk and publish that stuff here. So much more contoversial and there is no reason not to call out stuff the upsets you. Huh?

    Budgets! They’re easy. HARDLY. I am not a solopreneur or the like but the firm I work in is very much built on the model of entrepreneurship. I have a business unit and it relies on futures as much as anything else. I have learned a very hard lesson recently. I have been insulated in the past by a national contract that feeds work into my team on a continuous basis and recently the work has depleted by about 50%. The point is not my sorrow but the realization that planning for the next quarter/year is so critical and I have been focussing so hard on customer service that the forecast slipped a bit. Result = we had to trim our team. Tough choices and I take responsibility for that (partially because regardless market conditions are a reality).

    Anyway, not entirely the same thing but plays well into your tips because sustainability in tough months relies so heavily on what you have “in the bank” regardless if that’s work lined up or savings to get you through. We all live it daily so thanks for taking the time to address it here.

    Eyes open! Onward and upward.

    • Hey Ralph! You think I don’t take risks? I keep those juicy nuggets for my subscribers because you guys are so deliciously special to me! Not going to give that kind of info out to the world!

      Thanks for sharing how it works it your company – and indeed, onwards and upwards! 🙂

  10. Absolutely superb illustration! I’ve emailed it to so many friends of mine. I kept looking at it and kept giggling. Awesome!

    Thank you for sharing.

    Cherry

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