As a business owner, you are probably constantly planning new projects to pursue. For long-term projects, you may need to select which staff members will work on them, purchase software and other necessary items, build a time frame that outlines milestones to be achieved by certain dates, and the list goes on. These projects have many elements to consider, but there’s one important step you absolutely must take before anything else: establish a strict project budget that you must adhere to.
In my experience as the CEO and founder of the CMA Exam Academy (a Certified Management Accountant exam review program), I have seen firsthand how important it is for companies to prepare budgets for long-term projects. Here’s an overview of why long-term project budgets are vital and useful advice for entrepreneurs to keep in mind.
Improving the bottom line should always be a top priority for business owners. If you don’t have a budget for the project, it can be so easy to have a “sky is the limit” mentality and spend an outrageous amount of money that can end up hurting your company’s bottom line and financial health in the long run. Having a tight budget will help you and your team decide what costs are absolutely necessary to make the project a success, which will keep you from spending frivolously.
Additionally, having a project budget can also help you and your team meet a designated timeline. For example, if your business needs to ship items that will be used to produce a new line of products before a specific deadline, you know that you will need to ship the items well before the date so you don’t spend a lot of money on shipping. overnight shipping (which can cause the whole project to go over budget).
If you’re trying to set a budget for a new project, be sure to keep these helpful tips in mind:
Organize a meeting for project decision makers to discuss the budget
Will the marketing department, customer service and accounting department all be involved in this project? A department team lead may have a different idea of what the total project costs will be than another team lead. For example, a social media team leader might know that the price of a Facebook advertising campaign is much higher than what another department head thinks it would be. That said, having a meeting for all project decision makers will give everyone a chance to share their thoughts and come to an agreement on which budget to select.
Use a cloud-based spreadsheet platform to list essential expenses
Trust me, it’s so easy to forget about the minor project costs that can add up and run you over the total amount you thought the project would cost. For example, if you’re expanding into a new city or country, you might forget to include the price of a localized Google advertising campaign targeting potential customers in the new market. That’s why it’s crucial to take the time to think about each and every cost involved in the project and record them in a spreadsheet. These can also include hourly costs for local contractors who will help, software subscriptions, printed documents, flights for team members, etc.
You might think that you could just make a mental list of all your expenses and then select a general spending threshold that you shouldn’t exceed, but it can be so easy to forget the minor costs (like the cost of some packing or shipping supplies you need) . Taking the time to list each essential expense will help you select the best possible budget for the project.
Now, it will be wise to use a cloud-based spreadsheet platform (like Google Sheets) to list your expenses, rather than a simple Word document or Excel spreadsheet. The reason for this is if you ever need to add a new project expense or remove it, you can easily do it on your phone while on the go. Or, if you and your team spend more on some costs, you can easily adjust the budget for the rest of the project over your phone. Your team will also be able to access the spreadsheet whenever they need it.
Make sure everyone working on the project is well aware of the budget
The last thing you want is for a team member to accidentally and unknowingly spend money ordering supplies or another project item just because they didn’t know there was a tight budget. So make sure that all your team members working on the project are well aware of the budget that is in place. If a person doesn’t know the budget, he may end up making a decision that causes the entire project to go over budget. Make sure everyone has access to the aforementioned cloud-based spreadsheet, so they can always stay up to date on total costs up to a certain point, how much of the budget is still available, etc.
Have regular meetings specifically to review the budget
You don’t want to just set the budget and then hope all the project decision makers stick to it. Especially for projects that will take months, a year, or even longer to complete, it can be easy to experience unexpected costs and/or roadblocks that could cause you to go over budget. Then schedule a weekly or bi-weekly meeting for project decision makers to go over budget, share updates on where their teams are, verify that milestones are met on certain dates, etc. This will keep the project on track to be completed by a designated deadline, all while keeping it under budget.
Establishing and sticking to a budget will help keep long-term projects from hurting a company’s overall financial position. Following these steps will help you and your business budget successfully.
Nathan Liao, founder of the CMA Exam Academy, mentors accounting and finance professionals in over 80 countries to become Certified Management Accountants.