Take Charge of
Using the zero based budget plan by Dave Ramsey
By Gayle Kurtzer-Meyers, 20+ years in Property Management,
freelance writer, advocate for positive thinking
"Budgeting has only one rule: Do not go over budget." -Leslie Tayne-
Starting a business takes careful planning and consideration to have a successful startup. If you’re planning on launching a business, you need to ensure that you’re making profits within an appropriate period.
It’s all too common that when businesses are in the preliminary stages, they often make the mistake of spending more money than what they can afford. Around 70% of enterprises have outstanding debt, which implies that even when they’re making sales or successfully offering a service, they’re not earning any profit.
Ideally, your business shouldn’t take more than 2–3 years, at most, to break even and become profitable. When it exceeds this timeframe, you risk facing the reality that you need to let this business idea go.
Similarly, as many as 64% of small business owners say that they’re struggling financially instead of having a prospering business. The reasons for their financial constraints stem majorly from operating costs, which makes up for 40% of small business expenses.
What do most businesses do to overcome these constraints? Almost 45% of them opt for additional credit, which inevitably leads to outstanding debt. Other ways of managing costs include cutting employee pay or reducing their team size, which can result in many severe repercussions in the future.
Another adverse effect of incurring such drastic amounts of debt is that many business owners have to resort to using personal assets to help their business get by. Around 58% of small businesses rely on the owner’s assets to secure their debt.
Adding on credit and taking out loans are the two significant sources of debt. Of course, in many instances, incurring debt is inevitable. With smart and effective strategies for saving money and budgeting, you may be able to reduce the size of the loans you need and be able to pay them off quicker.
Here’s how Dave Ramsey’s zero-based budget can help your business prosper and reduce the chances of taking on extravagant amounts of debt.
What is the zero-based budget?
Ramsey’s way of budgeting entails four steps. The cycle starts at the beginning of each month and includes your anticipated income and all your anticipated expenses. This step will help you to have a tangible guideline to stick to throughout the month.
The zero-based budget, in no way, implies that you will have no savings in your account. It’s quite the opposite. Using this method of budgeting for your money, you can ensure that you will not be caught off guard with more expenses than you can pay off.
Ramsey’s ideology essentially states that with a zero-based budget, you tell your money where to go and take back the reigns of deciding how much you’re willing to dish out for each category. Whether it is operating costs or funding for market research, you will have a designation for each dollar before you head into the month.
Budgets give you a clear, focused idea of how much money you’re planning on spending each month and assign a certain amount of your income to it before the month begins.
It helps you preplan where each dollar is spent, so you do not inadvertently consume too much on unnecessary or avoidable expenses. It can also help you to identify whether you’re overspending in one field (for example: can you afford to designate this large amount to market research?) so that you can decide where you need to cut down on for the sake of meeting the zero-based budget goals.
“Budgeting is not just for people who do not have enough money. It is for everyone who wants to ensure that their money is enough.” -Rosette MugiddeWamambe-
The Dave Ramsey method
To incorporate the Dave Ramsey method, you need to follow a series of four steps:
1. Calculate your monthly income
The first step is to calculate the cumulative amount of earnings you make in one month. It’s more effective if you carry out these calculations on an Excel spreadsheet, which is easier to copy and paste from for every subsequent month.
Every single penny that you rake in through your business should include in this amount. While the actual amount could vary, you can manage the inconsistency by jotting down the amount of earning you make as a bare minimum, regardless of whether it was a productive or slow month for your business.
2. Write down the monthly and seasonal expenses
The expenses you list down should include all the anticipated costs you may encounter in the coming month. These expenses should consist of everything from the rent of your office space to the electricity and phone bills, operating costs, production costs, lunches, and more. You should also plan any loan installment and credit payments that you have to pay for that month.
To be on the safe side, Ramsey encourages businesses to have a miscellaneous category for any unforeseen expenses that may come up. This buffer should only be accessed when there’s an essential cost that must be met to carry your business forward. At best, if you don’t use the money allotted to this category, you can add it to your savings at the end of the month.
If you’re expecting any seasonal expenses in the future, for example, if your business incurs considerable costs during Christmas, calculate how much you should have saved in the coming month to afford that expense successfully. Add that to your monthly payments as well.
3. Subtract the income from all the expenses
The next step is to subtract your income from your expenses and ensure that it equals zero. While you may not get there at your first attempt, this only means that there are some adjustments you will have to make. Lowering your expenses or some
If you discover that your expenses outweigh the income you’re bringing in, you need to figure out where to reduce your expenditure. This way, you can identify if there’s an area you could monitor more closely and be more stringent. For example, you might realize that a portion of your market research expenses not being used most productively.
Where does the term zero-based budget originate? It merely means that every dollar you bring in has to go somewhere. It is to encourage you to follow a preplanned guideline of how much you can spend and where, so you never go into debt
Does this mean you won’t have any money left over at the end of the month? No. It only guarantees that all the predicted expenses you have are taken care of, by giving all the income you’re earning a role to play in meeting those expenses. Any funds left over at the end of the month can be added to your savings or added to your pre-existing category for paying off debt.
4. Keeping track of your expenses is vital
No budget is successful without your vigilance and dedication. It is best if you make sure that the expenses your business incurs will be paid for through the funds you’ve set aside. Any additional, unavoidable costs should be taken care of with the miscellaneous category. However, if there are expenses that can be sidestepped, refrain from indulging in them.
Keeping track of your expenses gives you a sense of security about your business’s future. You already know how you’re going to manage your expenditures in the upcoming month; with this knowledge, you will have the peace of mind to focus on your business’s growth and ways to earn more profit.
The more vigilantly you follow your budget, the higher your chances are of saving money and occasionally setting aside funds for a once-in-a-while splurge, such as a new coffee maker for your office space.
Entrepreneurs often make a startup funding mistake of waiting until their business is off its feet and earning a considerable income before deciding to budget. Consequently, this results in crushing debt and loans that take years to pay off and a business that takes much longer than the expected to break even.
Don’t wait until your business breaks even to be serious about where your income is spent. The earlier on you begin budgeting, the more likely you are to have a flourishing, stable business that can focus on growth rather than on paying back loans.
“See money — currency — as the flow of energy and giving that cycles between you, others, and me. Now let it flow kindly, fairly, and mindfully.” -Rasheed Ogunlaru-
This article was originally published By Gayle Kurtzer-Meyers, medium.com.
VantageScore 3.0: What's a Great
Why an Excellent