Ep 14 | A Fresh Perspective on Budgeting
Budgeting is the buzzword with boutique owners right now - and we want to be honest - budgeting is sometimes more aspirational than something we see boutique owners actually implement and use -this is why we wanted to bring Budgeting training videos into Boutique School (they’re now live now!) This podcast is for you if you want to know how to budget, have a budget but don't use it, or want to refine your process and fill in some holes. Lindsey, the founder of HarQuin Bookkeeping, shares some fresh and unique perspectives on traditional budgeting practices that have been modernized and how to use them to create a cash budgeting system that you'll actually use.
Let’s dive into the episode!
If you’re like me (Lindsey), I’m one person who really just doesn’t have the time to go back and really chew on information, like I would if I were maybe a CFO for a business. I just need to know how I’m doing and then every now and then just be able to check in and see how I’m moving towards my goals, but I’m not going to go back and analyze. Like most of you, as small business owners, you have families and a lot going on and you don’t have the time for this either.
So I would like to have you think about something. Have you ever considered cash budgeting? There are some really popular teachings out about opening different bank accounts, and transferring money into them periodically, but it’s an old tradition. Dave Ramsey has the system he talks about where you take out cash from the bank and have different envelopes so that you’re saving money to make sure you have enough money for groceries, utilities and rent or your mortgage. So that principle has been around for a really long time. It’s a really easy way to make sure you always have money set aside. Back in the day they had different envelopes and they would take out their paycheck on Friday in 5’s, 10’s, and 20’s and divide it out for every week and 40’s would go towards the rent, etc and that way all things were covered. Well obviously these days cash can be quite inconvenient. I hate saying that, but it can be. So what many people do is open bank accounts for these things - this idea alone isn’t that trendy because when I think about it, HarQuin has been in business for over 14 years and we’ve ALWAYS recommended our clients open up multiple bank accounts - a payroll tax savings account and a sales tax savings account. So that principle has been present for a long time.
HOW TO IMPLEMENT IT NOW
Here’s a great example. If you’re wanting to budget for sales tax, and to set aside for sales tax, do you have the money separate so you don’t spend it because it’s not yours? All you would have to do is pick a day of the week - every Friday for instance - you would log into your point of sale, see how much sales tax you collected that week and then transfer from your main operating bank account to a savings account. Even with your payroll, if you don’t have a payroll company that automatically that takes your money and holds onto it until it’s due (we do this for our clients) - if you’re responsible for holding onto your own payroll, you could do the same thing. Your payroll company will say hey, you’ve incurred $325 of payroll tax liability and then you would just transfer that to that tax savings account. This way there’s no change of you spending it.
It’s so easy - but the not-easy-part is making it part of your regular routine. This is where you have to take charge and make the change. If you can do that - then you’re in business! You will be successful.
Another way is, a lot of boutiques obviously have peak seasons. You have Spring and you have what I would call Black Friday season, so November through the end of the year where you’re expected to have more inventory because you’re going to have more sales. Instead of having to get into very expensive debt, you can just self-fund yourself. Maybe set aside $100 a week to go towards that buying season so you have plenty of cash set aside.
Also, what we actually did for our business is we set aside money to self-fund for different projects with all the technology our business utilizes. When it comes to technology, it’s not obsolete, but there’s always something better that comes up every two to three years that you need to upgrade to so we set aside money every month so that we have money ready for when that next new thing comes out - the security protocol that gets invented, the next software that’s not compatible with the last software, or whatever it is, we already have money set aside ready to rock and we don’t have to bat an eye!
Another thing I’ve seen people do in the past is also set aside enough money to cover a payroll or two. I know Dave Ramsey also teaches about having one month’s worth of expenses in your savings account. It really does take the pressure off when you have physical cash sitting in a bank account that you don’t touch unless you intend to - so that you can still pay your employees, you can still pay your rent, in the case that something really bad happens. What if you get really sick for a couple months? This stuff happens so it’s good to have that pad for your sanity. If you do get sick and have to lay in bed, you don’t want to think about not being able to pay your rent and your employees. This money is there and to give you peace and to help you relax, knowing you’re always covered and can pay your bills.
Oftentimes, people want the magical number - the percentage. I always tell people to try different things until it fits. My friend said, you want to know much income tax to set aside? What did you pay last year? Start with that number. If you feel like your business is growing, up it a little bit every month. Something is better than nothing. No one is ever going to give you the magical number that’s the perfect number. We save for our income taxes and we actually had a lot left over. We over saved, so praise the Lord we have stuff sitting there for next year, but just try different things, like we should probably back off our number a little bit - maybe we’re saving too much money and we could be using it other places. So you want to see what fits. Unfortunately and fortunately it’s specific to you - you can’t go into an online community and say what works for you - they might have five children and you’re single. You have different needs, different expenses, money going out and coming in.
What can be really scary is, say you see a bank account with $60,000 in it and you don’t know what that’s for unless you’re bookkeeping is daily. But you don’t know how much is sales tax that you haven’t paid yet or payroll tax you haven’t paid yet or if you’re setting aside money to pay for the next two payrolls. The bottom line is you don’t know how much of that money you can spend. And normally bookkeeping is done in the month after something occurs, so bookkeeping isn’t necessarily going to give you the pulse, the today - it can tell you about last month and how well you did and that is a different set of numbers you need to know, but if you want to know how much money you can spend on x, y, or z or how much money can I pay myself that’s when the cash budgeting really helps because it takes out all the money that’s not yours and then whatever’s left you know what you have.
So pick a day that works for you to transfer funds - some people do it the day they pay their bills, or once a week. For our business, we do it once a week when we sit down to pay our bills and we’ll also transfer our money so that all of our funds are done. It takes less than five minutes and covers an enormously important part of your business! Get in the habit of setting aside the money and you’ll be where you want to be before you know it! We are here to support you each step of the way! And we hope you found this episode helpful on a VERY practical, life-changing level! If you implement these things, please message us in our Facebook group or email admin@boutiquebookkeeping.co or Instagram - we want to hear your testimonials!
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