Budgeting is a Powerful Tool for a Small Business

I often speak to budding entrepreneurs about steps they can take to protect their business. One of the first steps is to have a business plan before you start, and then use it as an ongoing budget.

Budgeting is not glitzy and exciting like marketing, but it is essential to a successful business venture. Here is what happens when you get the budgeting wrong:

WeWork is a worksharing space that wanted to go public. According to the Wall Street Journal (behind a paywall), WeWork was exceedingly sloppy in its financial disclosures to potential investors. Investors bailed and the stock offering was withdrawn:

WeWork parent We Co. misstated the number and cost of the working desks it set up in the first half of the year when it first filed in August to go public. The company also omitted information about its governance, including that its then-Chief Executive Adam Neumann had been on the board’s compensation committee. “Their whole approach is at best sloppy, because a lot of the important numbers don’t tick and tie, and at worst it could be obfuscation,” said Nori Gerardo Lietz, a senior lecturer at Harvard Business School who recently published an analysis of We. “I prefer to think it’s just sloppy.”

This inattention to budgeting detail apparently cost WeWork its initial public offering investment opportunity. For a small business, the cost of not budgeting could be the business itself.

It is imperative to watch the costs throughout the year. A small business can be devastated if raw material prices creep up or fuel prices spike. If you aren’t pricing your goods or services properly, or you haven’t paid attention to changes in the marketplace, you won’t understand why your profits are down – or worse – you lost money.

If you want to hear more tips for small business, join me Thursday at the Women’s Business Center in Durham.