The Budget

1. 1

   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.

2. 2

   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.

3. 3

   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.

4. 4

   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.

5. 5

   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.

6. 6

   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.

7. 7

   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.

8. 8

   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%).

9. 9

   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.

10. 10

    Small-business owners and managers more frequently consider their budget as a set of flexible guidelines (60%) than a set of rigid boundaries (37%).

11. 11

    Seventeen (17) percent of all small, employing businesses have a capital budget. Few capital budgets project expenditures beyond five years.

12. 12

    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.

Volume 7, Issue 4, 2007
ISSN -

William J. Dennis, Jr.
NFIB Research Foundation

• 16Before entering this business, had you ever declared bankruptcy? Top 100
• 1Do you have a written budget for your business listing projected revenues or sales by sources, projected expenditures or costs by categories, etc.?
• 1aHow do you keep track of how well the business is doing?
• 2How often do you prepare a budget for this business?
• 2aWhat is the first month of your current budget?
• 3Do you, another owner, an employee or someone else prepare the budget?
• 3aAbout how many hours does it typically take you to prepare the budget? An estimate is fine.
• 4When you start preparing your budget, what is the first factor you usually build into it? Is it?
• 4aWhat is the second factor you usually build into the budget? Is it?
• 5How do you typically project expenses for the next budget? Do you typically:?
• 6How do you forecast or project revenues for the next budget? Do you typically:?
• 7Approximately, how many major expense categories does this business’s budget have?
• 8Approximately, how many major “source of revenue” categories does this business’s budget have?
• 9Does your budget have cash flow projections that account for expected seasonality or ups and downs in either revenues or expenditures?
• 9aIs that because you don’t expect seasonality or other irregular cash flows, or because it makes your budget too complicated?
• 10Do you consider the expenses in your budget more like flexible spending guidelines or strict spending boundaries?
• 11Do you keep your budget on some type of computer program, such as Quicken or Quick Books?
• 12How often do you typically review the budget and compare your projections to what is actually happening?
• 13At this time, how close are your expenditures or costs running to those you originally projected in your budget? Are they:?
• 13aWhat is the primary reason for variance from your cost projections?
• 13bWhat is the primary reason for variance from your cost projections?
• 14At this time, how close are your revenues or sales running to those you originally projected in your budget? Are they:?
• 14aWhat is the primary reason for variance from your revenues or sales projections?
• 14bWhat is the primary reason for variance from your revenues or sales projections?
• 15Do you have a capital budget, that is, a budget that projects future capital expenditures and acquisition dates for major pieces of business equipment, land, vehicles and things of that nature?
• 15aHow many years out do you project capital needs?