The Budget
• Forty-three (43) percent of small, employing businesses operate with a written budget that projects revenues (sales) and expenses (costs) by category for the budgeting period.
• Four of five small employers without a budget rely on comparison with the past, typically a base period, to determine how well they are presently doing.
• The owner or manager prepares the budget in 73 percent of small, employing businesses that have a budget. In another 11 percent of cases, a second owner (partner) performs the task. The median time he/she takes to prepare a budget is about six hours.
• The first step in constructing the budget for a small, employing business typically involves estimates of either expected revenues (47%) or expected expenditures (43%). The second step typically involves estimating the other. Intended profit is a residual, that is, what is left over.
• Thirty-four (34) percent of those developing expenditure projections for a new budget re-estimate all costs (zero-based budgeting). Twenty-nine (29) percent simply add a percentage to each cost category from the prior budget. Another 29 percent re-estimate categories where they expect major changes to occur and add a percentage to the rest.
• Fifty-one (51) percent of those developing revenue projections for a new budget review sales trends, adjust for major expected changes, and examine outside factors that may directly or indirectly influence sales. Eighteen (18) percent simply add a percentage to each revenue category for inflation while 21 percent adopt a middle course.
• Revenue and expenditure projections in most small-business budgets appear realistic. Forty-two (42) percent have revenues within five percent of projections. Fifty-five (55) percent have expenditures in the same range. Those outside the plus five/minus five percent range are almost equally divided between those whose projections are too high and whose projections are too low.
• Sixty-two (62) percent of small employers who have a budget also make cash flow projections. The reasons most commonly given for not making cash flow projections are complexity (54%) and steady cash flows (33%).
• Most small-business owners and managers with a budget periodically compare budget projections with actual performance. The most common interval to compare them is once a month (43%). Weekly (16%) and quarterly (12%) are other common intervals.
• Small-business owners and managers more frequently consider their budget as a set of flexible guidelines (60%) than a set of rigid boundaries (37%).
• Seventeen (17) percent of all small, employing businesses have a capital budget. Few capital budgets project expenditures beyond five years.
• Six percent of small employers declared bankruptcy prior to entering their current business. The percentage is effectively the same as for the American population. Owners who previously declared bankruptcy are 50 percent more likely to have a budget than the population of owners.
