How to Create Your Budget Based on Last Year’s Expenses

What kind of budgeter are you? Do you see budgeting as a task that simply needs to get done (and then revisited throughout the year as things change) or are you the type who takes pride in budgeting?

If you’re the type of person who enjoys accuracy and pats on the back for a job well done, or if you get unreasonably excited when end-of-year numbers match your budgeting predictions, then you’ll appreciate a strategic approach to your budget creation. Using expense reporting software, it’s incredibly easy to come up with predictions for next year that are spot-on, using last year’s expenses as a guide.

If this kind of approach is new to you, here is a step-by-step guide to putting together a feasible small business budget for this year based on last year’s expenses.

Step 1: Determine average spend

Determine your average spend over the course of the year across different expense types, general ledger accounts, departments and so on. Expense reporting software will allow you to pull this data with ease.

 

Step 2: Meet with department heads

 

Meet with your department heads to gain visibility into where potential cuts can be made and provide your managers with visibility into the reporting and budgeting process. Doing so arms the decision makers at your company with the information they need to better control and predict departmental costs.

 

Step 3: Negotiate with vendors

 

Pull last year’s data from your expense reporting software to get better volume discounts. If possible, try to consolidate vendors for even better rates and less administration costs. Then include those lower cost projections in next year’s budget.

 

Step 4: Make adjustments

You’ll want to adjust your travel and expense policy based on data from your overspending/exception report. What did you forget to account for last year? Is the same thing likely to occur again this year? Now is your chance to ask about these things and include them in the annual budget, if necessary.

 

Step 5: Leave room

 

You’ll almost certainly need to do some flexible spending throughout the year, so leave room for it. These flexible spending amounts will be estimates; however, you can pull historical data from your expense reporting software to greatly improve the accuracy of your flexible spending allowances.

In order to create room for flexible spending, you’ll want to always try to save in any areas you can. In a recent blog post, Small Biz Trends’ Anita Campbell does a terrific job of encapsulating the main points of Bolt Insurance’s Small Business, Big Savings infographic. A few more tips from this post that you can leverage include:

  • Offering employees added benefits instead of bonuses to keep payroll taxes down.
  • Saving on power and hardware costs by replacing desktops with energy-efficient laptops and tablets. Don’t fix old computers – replace them instead.
  • Negotiating your lease. It’s a massive expense and there is certainly plenty of open commercial real estate you can use for leverage.
  • Accruing more interest by making bank deposits early in the day. The early bird gets the interest!
  • Becoming a utility watchdog. Switch to newer light bulbs, turn off lights when they’re not needed and shut down computers at night. You can also make sure surge protectors and other electricity-sucking mechanisms are turned off nights and weekends.

By allowing last year’s numbers to inform your spending decisions in the year ahead, you are setting yourself up for success. With the ease that expense reporting software provides, next year’s budget will be a thing of beauty – something of which you can be proud.  

Just like it did this year, and the year before, expense reporting will affect every part of your business in 2014. Learn why you shouldn’t wait to be asked to fix it.

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