One of the best business management tools you can learn to use is a budget. Oh, I know; “budget” ranks right up there with IRS, death benefit, hemorrhoids and goiter as words we want to avoid associating with.  But, this word does not have to be something vile and filthy.  You don’t need to wash your hands after writing it.  It can, in fact, be an excellent tool for helping you improve your peace of mind and your quality of life.

While it is an extremely valuable tool in getting your personal and family finances in order – thus getting the money problems monkey off your back, I’m not going to go into all of that.  This time we’ll look at it specifically as a means of helping you run your business more efficiently. 

What is a Budget?

A budget, simply stated, is a tool to help you monitor your expenses so you keep them in line with your income.  If you spend more than you make, you experience negative cash flow, which leads to mental anguish.  If you spend less than you make, you enjoy a positive cash flow and end up skipping through the daisies on a sunny afternoon, singing a light-hearted song and reveling in the joy of life.  Really!

Dealing With Variable Income & Expenses

As a writer/author your challenge is a bit tougher than many small businesses in that your income can vary greatly from month to month.  How do we allow for the variances?  We average.

Go through your records and get an annual total for your writing income. If you are confident of doing better this year, adjust it to reflect your confidence, then divide by 12 to arrive at an average monthly income.

If you are an author, you may encounter most of your expenditures as you complete a book in the form of artwork, editing and promotional expenses.  You may want to average these as well.  Things like your electric bill will be fairly predictable month by month based of past billings.  Use actual amounts each month where you can.

Slush Fund

Your slush fund is a place where you temporarily store excess funds on months where income exceeds expenses for use on those months that either have higher expenses or where income doesn’t meet your expectations.  It could be a savings account, it could be a separate checking account, it could be a sock in your underwear drawer.  It doesn’t matter much as long as it’s NOT in your main checking account.  Wherever it is, it needs to be accessible so you can shift money out of and into the checking account as needed but not so accessible that it will get frittered away.  Like in your wallet.

Details Matter

For a budget to work, you need to track ALL of your expenses.  If you don’t, you may be doing fine on paper but you’re still constantly broke in real life and it’s because your budget is leaking cash though unaccounted for expenditures.  You need to get and keep receipts for all expenditures.  Keep a notebook where you can record things you buy that you don’t get a receipt – vending machines, cab rides, bus fare, etc.  It’s these things that will surprise you how much money you spend without even thinking.

Getting Organized

To set up your budget, go through your check book and credit card statements and see what you spend money on for your business.  If you have been writing seriously for a while and were keeping financial records, use those.  If you’re just getting started, I recommend keeping this as simple as humanly possible.  Taking a chart of accounts right off the IRS Schedule C (Small business income & expense form) is often the easiest way to go. You can get a PDF version of that here: IRS Schedule C.  The instructions explain each entry.

The Hard Choices

While setting up a business budget is not nearly as trying as a family budget, nearly everyone will get a serious face-slap from the amount of cash they fritter away each month and how far outside of their income they are working. To fix this you have two ways to go: increase income or reduce expenses.

Increasing business income generally means working harder and doing more or raising prices.  You may need to branch out and look for new revenue streams.

Reducing expenses is often the more realistic way to go, but it may require some sacrifices.  The specifics will depend on your situation.  You have to prioritize your current business expenses.  For those things that must be kept, can you do them less expensively? What expenses can be cut loose?  You must locate the veins that are hemorrhaging cash and pinch them off.

Paper or Plastic?

While a budget can be managed on paper using ledger sheets (I think they still make those!) I don’t know any writers who don’t have a computer on which to write, so you may as well use that.  If you have Excel, (or similar spread sheet) you can set up a budget form in that.  The MS Office web site offers many pre-configured Excel templates [Here].  While you can run a business bookkeeping system on a spreadsheet, it is often very useful to use a bookkeeping program like Bookkeeper, QuickBooks, Peachtree or AccountEdge.  Any decent package has budgeting built into it.  Some are expensive, shop around for the best price.  The low cost packages (Bookkeeper) may suit your needs for many years but data may not import into a more powerful system should you need it.

Is It Worth It?

Money problems make you miserable.  If your writing business is, or ever will be, your primary source of income managing it well is essential.  Being creative and imaginative is often more difficult if you’re worried about whether or not you can pay your expenses.  Yes, being an effective money manager is definitely worthwhile, and the budget is a valuable tool in accomplishing this.