Entrepreneurs are the Jacks and Jills of all trades. There’s nothing you can’t do if you put your mind to it.
The greatest hurdle you’ll consistently face isn’t whether you can accomplish a task. It’s the limited number of available hours in the day to get everything done.
One of the most common mistakes entrepreneurs make is avoiding the time-consuming but vital effort of reporting and budgeting. This mistake is a leading factor in small business failure.
Small businesses most often fail as a result of:
- Poor understanding of cash flow — 82%
- Being unrealistic about financial projections — 73%
- Failing to recognize when you need help — 70%
While you can’t control every factor that plays into your success, business reporting and budgeting can help you identify issues proactively. From this stance, you can gain visibility into potential problems long before they become a significant threat — and avoid learning lessons the hard way.
This post will break down the reporting and budgeting steps that all entrepreneurs should be following to protect their businesses. We’ll also provide a few tips to help you build systems that save you time.
How entrepreneurs use business reporting and budgets
Entrepreneurs use business reporting and budgets to gain a complete picture of financial and departmental performance. They also help you track progress towards the goals you set for your business.
This information is critical to any entrepreneur. Whether you want to seek funding, grow your business, or launch a new product, you’ll need a budget and reporting system to light the path forward.
How to set up business budgeting
Business budgeting is the process of analyzing past and current finances and developing a plan for future earnings and expenses. The output should give you an accurate picture of your financial position and a roadmap that aligns with your monthly, quarterly, and annual goals.
Your business budgeting process will count on:
- Revenue statements
- Detailed expense statements
- Cash flow documentation
- Profit and loss statement
Put these together and organize your budget using a 3-step system:
- Project your income — how much you expect to earn and when you expect to earn it.
- Plan your expenses — what you’ll have to spend across categories, including subscriptions, materials, payroll, and others.
- Calculate your profit — how much is left over once you pay out all your expenses.
When you follow these 3 steps, make sure you account for a range of scenarios. Be conservative with your revenue expectations. And don’t estimate expenses unless you have reasonable evidence to back it up.
Business reporting is the practice of reviewing outcomes across all areas of a company. With these insights, you can understand where the business is succeeding, where it’s failing, and most importantly — why.
Collecting and analyzing performance reports regularly yields long-term data and comparisons — which are incredibly valuable to any business. With this information, you can steer your company in the right direction and avoid oversights that would be otherwise hard to predict.
Before we discuss the process of business reporting, let’s first define OKRs because they’ll form the backbone of the process.
Objectives and key results (OKRs) are a popular goal-setting system of accountability. Your objective is what you aim to accomplish, and the key result(s) are the metrics you’ll use to measure progress towards the end result.
Your business reporting should cover:
- Strategic OKRs — topline goals for your business that each department can contribute towards achieving.
- Department OKRs — marketing, sales, personnel, product, and customer service should each have their own goals that contribute to the Strategic OKRs and advance their team’s performance.
- Budget reporting — what you earned; what you spent, when, and why; and how your actual income and expenses are tracking against your projections.
What you miss if you don’t use budgets and reports to guide your startup
There are three primary disadvantages if you avoid creating, maintaining, and regularly analyzing your budget and reports:
- You might not be able to pass a due diligence investigation. Such an outcome may prevent you from accessing funding for your business when you need it.
- You may overlook big picture issues heading your way. Anticipating predictable problems, such as cash flow shortages, allows you to address them proactively and in the most effective way possible.
- You could miss opportunities that are right in front of you. With access to performance reports, you can identify sales trends, customer preferences, top-performing team members that should earn a promotion, and other positive outcomes that merit your attention.
Each of these is a disadvantage that could potentially sink your business. But if you plan carefully and set yourself up with strong systems, they’re also largely preventable issues.
How to set up a budget and reporting structure that saves you time
Business budgets and reports give you a complete picture of your business finances. Since they reach into every area of your business, developing them can be a time-consuming process.
We’ve rounded up a few tips to help you streamline the effort.
Tip #1: Leverage software
Software can speed up the budgeting and reporting process by automating repetitive tasks.
For example, you can keep tabs on your budget with Quickbooks Online. Make sure your records are up-to-date before pulling any reports.
Work with your bookkeeper to set up which reports you need (P&L, revenue, expenses) and how often you want to view them. We recommend monthly or quarterly at a minimum.
Tip #2: Create consistent reporting templates
Each department should track OKR progress on a monthly or quarterly basis. Using a consistent reporting template will save time and help you develop performance comparisons.
You can leverage slides, spreadsheets, dashboards, or other methods that help you visualize the data, present it to others, and compare it month-by-month.
Your templates should cover the metrics that’ll help you measure the health of your business. These will be different for everyone, but a few reliable metrics across departments include:
- Sales revenue growth rate
- Lead to customer conversion rate
- Social media follower and email subscriber growth rate
- Number of successful product releases
- Number of support tickets resolved
- Employee retention rate
Tip #3: Commit time each month to review reports
Now that you’ve built systems for budgeting and reporting, the final step is to make the most of the valuable data available to you.
You’d be surprised by how many people generate reports, then call it a day. But don’t stop here.
Take the time to review your reports and budget status. Set a monthly recurring calendar invitation to yourself and other stakeholders. Honor that time.
Conclusion: Get more tips to help your small business succeed
Now that you’re ready to level up your business budgeting and reporting processes, why not do the same for other areas of your business?
Download the Complete Guide to Entrepreneurship in Eastern Kentucky for more actionable advice that’ll help you take your small business to new heights.