Don’t wait for a crisis or an economic downturn to create a formal budget for your dance business.
Nearly two-thirds of small businesses—and almost three-quarters of those with 1 to 10 employees (a typical size for many local dance retailers and small studios)—operate without an official, formally documented budget. Those were the findings of a 2018 survey by Clutch, a B2B research, ratings and reviews firm. If your store or studio is skipping a formal budget, you are shortchanging your business. While a very small company may squeak by without one, you are much more likely to thrive with one. As Riley Panko, author of the survey report, writes: “Businesses of all sizes should create a budget, or risk the financial health of their business.”
A budget can help a local dance retailer or dance studio focus and grow, as well as mitigate common entrepreneurial challenges. For instance, small businesses in earlier Clutch surveys listed “unforeseen expenses” as their top financial challenge. With a budget, there’s more chance these can be avoided. “Without a budget, you have no measuring stick to evaluate your goals and performance,” an accounting services manager comments in the report. “[A budget] is part of developing a business and its growth goals.”
Why Small Businesses Skip Budgeting
So why do smaller businesses skip formal budgets even when they can benefit from them? Panko suggests it may be “because the task is confusing or because they feel a budget is constraining.” (That probably rings true for many small dance businesses.) But a smartly planned budget based on concrete data can still leave you some wiggle room to deal with the unexpected. (For more on constructing a budget, see “The Right Way to Prepare Your Budget” in the Harvard Business Review.)
3 Tips for Using a Budget
Think of working with a budget as a tool for uncovering problems, getting back on track and revealing the path to growing your business.
Use a budget to determine what your challenges are and how quickly you need to fix them before running out of financial resources, says the report. You’ll notice budget shortfalls sooner and “from month to month, you’ll be able to improve and get back on track,” an accounting and marketing executive points out in the study. “If your expenses go up, you’ll know why, and you can fix it next month.”
Conduct monthly budget reviews. “Don’t wait until the end of the quarter or the end of the year,” suggests an e-commerce site exec. “By looking at your actual results versus your budget every 30 days, you can see how and why your business is missing the mark and make timely adjustments.”
Think of budgets in terms of cash flow. “Too often, small-business owners create a budget based on linear expense projections,” David J. Campanella, senior vice president for U.S. Bank Private Wealth Management, says in the report. For example, your studio or store may budget an annual insurance premium payment as 12 monthly expenses. But “small-business owners thrive and survive on cash flow,” says Campanella. “Getting into a cash crunch at year-end when the annual insurance premium is due can have dire consequences.” Instead, budget your dance store or dance studio’s insurance payments when they are actually due.