Unfortunately, most business expenses don’t conveniently spread themselves out evenly over twelve months. And income? Well, most businesses have seasonal variability so you earn more in some months than in others. Getting income and expenses to synch up is likely to be one of the biggest challenges in your budget process. But it can be done without too much angst and heartache—as long you have a plan.
There are two major ways of dealing with the issue of monthly variation. One is to set aside the money and the other is annual planning based on your cashflow.
Setting Aside Money
You can predict which months are most expensive. Maybe all your software renewals are due in November because you took advantage of Black Friday sales. Or January is when your insurance bill hits. Or your SaaS services are cheaper if you pay for them annually.
You can amortize some expenses over time. You can save up money, putting a little bit in a separate account every month—as if it’s already been spent. That way, when the bills come due, the money is sitting there waiting to be used. You can also amortize some expenses rather than paying them annually. Maybe it’s cheaper to pay your SaaS provider annually, but you might find it easier to budget if you’re paying them the same amount every month.
The other method is cashflow driven. You know when your income is likely at its highest; you can set your big bills for those months. If January and February bring in the most income, set your big bills for March. If you earn a lot around Christmas, you can set your big bills for January. Your insurance provider and other vendors might be willing to change the date of your annual bill if you ask nicely. For other expenses, you might not set money aside physically, but you need to allocate it on paper (or pixels) so that you save some money from January to pay that big bill in April.
Choosing the Right Method
But, Mallory, you say, “I want you to tell me which method is right. Which one is best for my business?” The truth is that the best method is the one you prefer. Everyone’s brain works differently and that means that some business owners will be more comfortable with one method than another.
It may be that you will sleep more easily if you have an even distribution so that expenses are the same each month. Or you might prefer expenses to arrive naturally rather than setting aside money prematurely. There’s no right or wrong. The most important thing is that you pick one method and apply it consistently.
Are you trying to get your budget under control? Contact Office Accomplice and see if we can help!