At the core of every flourishing business is a sound budgeting strategy, but small firms are vulnerable to setbacks due to limited funding and an unsteady economy. There is no better time to revisit your budget.

While clever marketing strategies and dedicated employees go a long way in contributing to a company’s success, managers may underestimate the power of an operative business budget. Whether they are hesitant over the initial time investment or the commitment associated with the process, small business owners must adopt a manageable budget plan to prepare their business for success and better understand the structure of their company.

A recent HSBC survey indicates that confidence levels of small business owners are wavering. Whereas last year businesses owners in emerging markets had higher confidence in the economy, confidence has decreased in the past six months. The good news is that despite an unpredictable economic outlook, there are certain steps that owners and managers can take to help secure a positive outcome for their business.

The following are some key tips, recommended by financial experts and small business owners, to get you started on your budget:

Establish a Detailed System.
The early stages of the budgeting process should involve putting a standard tracking system in place and establishing a follow-up plan. You may opt to use business software or simply a data spreadsheet. “Establishing a simple system using spreadsheets to track your cost and income usually makes it easier to update daily or weekly,” Home Business Center, Inc. recommends. When choosing accounting software, “the best one for you is whichever one works with easy data export from your bank,” Tim Berry, president of Palo Alto Software Inc., writes at Entrepeneur.com.

Regardless of personal strategy, professionals emphasize using a detailed system when it comes to cost reports. “The more detailed information the better, especially if you are responsible for multiple departments, locations or sales groups,” the Houston Chronicle explains in its Small Business section.

Commit to Industry Research.
To get a clear projection of your business, various experts recommend spending time researching the overall industry marketplace, especially when calculating revenue. “Small business owners can often get a sense of what to expect by visiting other local businesses that are for sale and asking questions about weekly revenue and traffic patterns,” equity analyst professional Glenn Curtis writes at Investopedia.com.

The marketplace is also useful for conducting price and cost analysis, which involves differentiating direct costs and indirect costs of company supplies and services. Sharon Hauht, manager of purchasing and contracts for the Regional Transportation Commission of Southern Nevada, recommends market research via Internet or by contacting a few manufacturers directly to obtain a suggested retail price to assess costs and negotiate pricing if necessary.

A Budget Should be Flexible with Room for Error.
Ambitious business objectives don’t always match business funds, which is why it’s mandatory to distinguish ideal goals from attainable ones early on. “Take an honest look at what revenue is likely to do over the next year. Then, reduce it by 10 percent and adjust your business plan to that revenue number,” Keith McFarland, founder of McFarland Strategy Partners and author of The Breakthrough Company, explains at Inc.com. By condensing your budget in advance, there will be enough room for unexpected costs and emergency funding.

Furthermore, while it’s advisable to reflect on previous budgets, don’t assume that your 2011 numbers will be a carbon copy of last year. “If you just finished a year in which you went from 200 loyal customers to 1,000, you don’t just multiply last year’s budget by five. Some areas won’t grow at all, while others will grow rapidly,” Trent Hamm, author of The Simple Dollar, advises at American Express OPEN Forum.

It’s also important to consider risks within your company projects. “Just as with the budget, risks are vague in the initial stages of a project,” project management expert Joseph Phillips writes in IT Project Management: On Track from Start to Finish. “As the planning evolves, so does information on risks and risk management. You will need money for rework, risk mitigation, schedule delays and workarounds,” Phillips emphasizes.

Incorporate Employees in the Budgeting Process.
Financial setbacks are inevitable and may sometimes lead to cutbacks, yet business owners can benefit by carefully evaluating individual roles within a company and tracking how they affect the business budget in the long run. Area Development Magazine recommends weighing the consequence of eliminating certain individuals, further suggesting that employees who help attract customers may be more valuable to keep.

Recruiting and retaining the top employees for your company is a vital part of the overall budgeting process. It’s essential to keep the talent that helps drive your profits, which can be done by keeping an open line of communication, About.com’s Human Resources Guide advises.

Watch Your Progress Closely.
Once you’ve established a manageable budget system for your business, touch base with your employees to talk about goals versus actual progress. To simplify this step, your tracking system should be accessible to all of your employees, with whom you should follow-up on a routine basis.

“As my company grew from just me to 40 employees, we set up a regular budget review the third Thursday of every month, giving us enough time to close the month,” Berry says. “Bringing your people together to work on the budget builds an automatic peer process, pride in the performers and incentive for those who can do better,” Berry emphasizes.

Realize that No Plan is Perfect.
While tracking your budget, remember that adjustments may be necessary and that a budget plan is never permanent. However, if you find your budget does not match your ongoing costs, you may need to consult outside professionals.

“Make an appointment with a professional to obtain budgeting help if the budget you created does not consistently line up with your actual monthly spending and revenue,” educational site ThinkUp advises. Additionally, the U.S. Small Business Administration provides detailed financial guidelines to help avoid budget pitfalls.

Resources

U.S. Small Business Confidence Drops 12 Points but Remains in Positive Territory
HSBC, Jan. 20, 2011

5 Tips for Creating a Business Budget
Home Business Center, Inc.

Budget Strategically to Stay on Course
by Tim Berry
Entrepreneur, Aug. 28, 2008

How Do I Create an Operating Budget?
by Linda Banks
Houston Chronicle: Small Business

Six Steps to a Better Business Budget
by Glenn Curtis
Investopedia.com

The Fundamentals of Price and Cost Analyses
ThomasNet Guides: Engineering & Consulting

7 Smart Ways to Trim Your Company’s Budget
Inc.com

Creating Your First Small Business Budget
by Trent Hamm
American Express OPEN Forum, Jan. 20, 2010

IT Project Management: On Track from Start to Finish
by Joseph Phillips
McGraw-Hill Osborne Media, March 7, 2002 (first edition)

Cutting Your Company’s Business Costs: Less Pain, More Gain
by Richard J. Maturi
Area Development, February/March 2009

Employee Retention: Tips and Tools for Employee Retention
About.com: Human Resources

How to Create a Company Budget
ThinkUp (Walden University), Feb. 1, 2011

Understanding the Basics: Financial Statements
U.S. Small Business Administration