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?
- Open excel
- Enter numbers
- Create a few basic formulas
- If desired, add pretty colours.
- 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.
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 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:
- Open an Excel sheet
- 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.
- Along the top put the months of the year.
- Complete all the fields
- Below the expenses start entering your income that you already have.
- Take the average and include that for the rest of the months that you know you will make about that*.
*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.
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
- 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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