If you're following a strategic budget for your business, you're already on the right track. However, it's common for many business owners to regularly spend under budget in hopes of realizing a higher profit at the end of the month — or the year. Saving money in the short term can hold your business back from growing.
Your budget has guardrails for a reason — it's OK to near them. It's even OK to go over budget in some instances. When you learn when it's OK to be flexible with your budget and spend more money at the right times based on your financial data, you can grow your business faster.
How can I frame budgeting as a growth strategy?
Your budget isn't something that should hold you back or limit wise investment opportunities for your business. Your budget should do the opposite — help you focus your spending and efforts toward the areas that matter most for your business.
For example, if you're running an online store, a budget might help you prioritize marketing efforts in a specific region that has shown potential for growth. Or, if you're looking to expand your product line, a budget can guide you on when and how much to invest in new products while still maintaining cash flow.
Customer patterns or trends might change quickly depending on your industry, which your budget might not reflect when you made it six months ago. Remember, a budget is a strategic forecast based on your business's historical data — so it's important to stay flexible and think critically about your spending instead of strictly going by the budget.
| 🔢 Not sure where to start? Try our free DIY Budget Tool. |
Keep in mind changing your budget or re-allocating spending should always be done mindfully. You don't want to be a victim of shiny object syndrome by throwing money at things that aren't directly focused on the strategies you committed to in order to achieve your goals for this specific time period.
Who should be making financial decisions in my business?
Creating a team with the right people to help with the budgeting and spending processes is invaluable. As a business owner, you should be involved in the decision-making process, but you don't have to do it alone.
Your designated team should have
- People who know your current budget and goals: business coaches or mentors, partners and high-level directors or managers
- People who know your target customer and market landscape: department experts, like marketing managers and logistics leaders
- People who know and understand your financial mindset and position: CPAs and tax advisors and banking/financing advisors
These aspects all play a role in budgeting and spending — so they should be represented in your decision-making team.
There are many benefits to making big-picture budget decisions with a team instead of by yourself. You have people more involved with different parts of your business than you are, and they can make suggestions or point out flaws you might not have spotted yourself.
What questions should I ask before spending outside the planned budget?
If you're favoring short-term savings and never considering purchases that may put you over budget, you may be losing out on long-term wins for your business. Instead of looking at your budget in black and white, aspire to be more analytical with your team of financial decision-makers.
Here are a few questions you can ask yourself or your team to decide whether an over-budget purchase may be worth it or not:
- Will this purchase help us better serve our target customer?
- Can we afford this without jeopardizing payroll or other necessary expenses?
- What would the long-term benefits be for our business if we make this purchase?
- What research can we do to ensure that this will pay off for us?
There are going to be pros and cons to every choice, but the preparation you do can help set you up for success, whatever you decide.
How can I determine if I can afford off-budget spending?
It's not always easy to decide whether you can afford off-budget spending. You may be able to apply for a short term loan or other line of credit, shrink the budget of another area, or request paid-in capital or shareholder contributions in some cases.
| 💸 Read: The basics of business debt |
To make your choice clearer, outline both the risks and potential return on investment (ROI) of the decision. For example, if you're a real estate investor and looking for a new property, there are pros and cons. The main pro would be the chance to bring in additional income, but it could cost a lot of time and money to update a property so that it's in good shape to rent out.
At that point, you would discuss with your financial team whether you think the benefits outweigh the risks. Regardless of your business or industry, it's important to learn where the balance is between boldness and prudence. Other decision-making formats could also aid you in your process, like a red light/green light exercise.
Red Light, Green Light System for Financial Decisions
A common decision-making system for business owners is known as a red light/green light system. This is to help you decide whether you should go (or not go) with a certain financial move.
You simplify a decision to "go or no go" and base your research on what the outcomes are for both decisions. This requires you to think of the input and output required to make a particular decision work for you. If it takes too much input or wouldn't give you enough output, then you would "red light" the option. The key to this strategy is to clearly define things like "too much" and "not enough" before the opportunity presents itself.
The pro to using this method is that it forces you to make a decision one way or another. You wouldn't have to spend time making adjustments or edits to make it work — you would simply say yes or no. The con is that it may be too simple of a process and sometimes tweaking an idea is what it takes to make it successful.
What does accountability look like in strategic spending?
Too much overspending without results can cause problems for your business. You could potentially lose out on cash for necessary expenses or other priorities. To prevent that from happening, there should be guardrails in place for spending — especially over budget.
Some best practices for maintaining financial accountability include
- Regularly reviewing financial data and making adjustments at least monthly
- Setting up clear approval processes for spending over budget that involve multiple people
- Monitoring the success and ROI of off-budget expenditures (then adding any extra financial decisions to your goals list with the corresponding metrics for success)
- Having open communication with your financial team and accountability partners to discuss any unplanned spending
Fears of spending too much and dealing with the consequences are often what hold business owners back from making riskier — but sometimes worthwhile — moves. When you have systems like these in place, it helps you catch problems and solve them sooner.
The bottom line
A well-crafted budget can help your business grow and succeed. It doesn't have to be a restrictive enemy that keeps you from reaching new markets or launching new products. It may take some trial and error, but learning when it's OK to go over budget as a business owner can take your business to the next level.
It's OK to change your budget plans if you see a promising new area that your business could succeed in. The key to being flexible with your budget is knowing if an effort is worth it. This can certainly be through trial and error, especially for new or small business owners. If you're looking for less error and more expert opinion, contact DiMercurio Advisors for guidance on creating and adjusting a budget that will help your business excel.
