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Creating a “dirty budget” {Financial Friday$}

If you’ve never heard of the term “dirty budget”, don’t be alarmed. It’s actually a phrase my mother used to use referring to a “quick and dirty budget”. It means something that works roughly but needs refining. This sort of budget is the budget you turn to in a rush when someone asks you for a commitment such as, “How much can you put towards the holiday banquet” or “Do we have more that we can put into advertizing this month?” While there are several ways you might going about making a dirty budget, there are a few trends to keep in mind. This post is to help you get started on the journey of making our own dirty budget for future use.

Step 1: Know your common expenditures

Instead of knowing your revenue first, you need to know your common expenditures and about how much they are. In the world of business this can be something like your weekly payroll, your monthly utility bills, or your yearly webhosting fees. These are things that you commonly spend money on, so you should know the cost of them without batting an eyelash. (If you don’t, then start with acquainting yourself with your bills, first, then come back to this step.)

The second part to this is to know what’s flexible. You have to pay your employees, but do you have to leave every light running all night long? See where you can shave off some money to save, but don’t stress about it too much. This isn’t a time to pinch every penny, but rather a time to get to know your set up so you can make decisions in a snap.

At Insanitek we put the freelancers before anything. Our freelancers get paid, then it goes to investing in the company. I can honestly say I don’t think Grace, the owner, has taken a paycheck since she founded Insanitek. She also says she won’t until everything is paid for, then she’ll take what’s left provided it isn’t over a minimum wage salary.

Step 2: Know your revenue

This is easier for some than knowing what they spend money on because they get excited to see the paychecks rolling in. Check this number against your expenditures, then your bank account. Is it a positive number? If so, how much? This excess is the number you need to focus on since it’s how much you’d have left over basic expenses plus “the little things” that often gone unmarked and unthought of. Take a look at that excess amount of money you have and ask yourself, “Do I have enough money to put toward the banquet and still be comfortable?” The comfortable is an important word because if you don’t have enough money left over, there will be more stress than is worth the cost of the party.

Now, the second part of this comes in the form of thinking about those flexible expenditures along with areas where you can make more money quickly. If you can logically make the money where you can contribute to that banquet, go ahead and say yes. But remember, this is the dirty part, so under estimate the money you think you can put forth. It’s always a pleasant surprise when you can do more later.

Be brutally honest

One thing that you’ll have to get comfortable with is being brutally honest with yourself and others. If you can’t afford it, you can’t afford it. Going into the red to make an impression isn’t worth it. After all, you want your company to thrive because the customers are attracted to the value you add to their lives. And, your employees will understand if you greet them with sincerity and transparency that you live what you say.