Research: Do Entrepreneurs Know How To Budget?
A budget is more than a tool. It’s a reflection of the health of your business.
Your budget should tell the story of your business and where it’s going – not a fictional or aspirational story, but one grounded in reality with a dash of hope.
78% of entrepreneurs do not feel confident in their budgeting skills.
Many entrepreneurs (41%) only began to learn about budgeting after starting their business.
Cash flow and finance controls are their first priorities when catching up on this knowledge.
Not too long ago we partnered up with Xero and Simple Books founder Philip van Zyl to publish The Heavy Chef Guide To Financial Management For Startups. Check out Philip’s recipe on budgeting and saving, and buy the book here.
Let’s talk about entrepreneurs and budgeting.
Earlier this week, Minister of Finance Enoch Godongwana delivered the 2023 Budget.
I was working, listening with only one ear, feeling a decided lack of interest towards the entire ceremony. To the point, a feeling of futility.
Then I was reminded that I’d felt that feeling before.
I was straight out of varsity, one year into turning my side hustle, ThumbsUP, into a full-time gig.
ThumbsUP was a photography platform for sports fans. It had a simple model. We’d go to sporting events around the country, take photos of fans and upload them to Thumbsup.co.za, where people would flock to download them. This was pre-social media. Don’t judge.
I was spending my days doing platform design, working with photographers, speaking to venues, uploading content, chasing advertisers and tracking our not-so-rosy bank balance.
I had a budget, which I had very enthusiastically set up at the start. But looking at it in the midst of hustling and surviving felt futile.
That feeling again.
Let’s be honest. The budget was way off. Most of the line items were irrelevant. Expenses underestimated. Income overestimated. What was the point in revisiting it?
Today, of course, I know all too well that the budget wasn’t the problem. That sense of futility was just an emotional response to the real truth: the business was out of my control. Too many moving parts. Unfocused delivery. Broken promises. The wrong partners. Indecisive leadership (yep, I’ll take that one squarely on the chin).
Does this sound familiar?
The accuracy and effectiveness of your budget is a reflection of the health of your business and, fundamentally, a reflection of the trust people have in you as a leader.
A principle I’ve since learned from our business partner Mike Perk is that a budget should tell a story of your business and where it is going. Not a fictional or purely aspirational story but one that is grounded in reality with a dash of hope* and ambition to push your boundaries.
(*In fact, Mike just co-published a book on the topic of hope. Check it out.)
Budgeting is a notoriously tricky learning curve for small business owners but luckily there are many smart tools that are making it a lot easier – a trend we can expect to see more of in future.
Let’s look at five insights from our research about how entrepreneurs rate their skills in this area.
Insight 1: Not Entirely Confident
78% of entrepreneurs rate their budgeting skills as very poor to average.
Insight 2: A Late Start
Many (41%) entrepreneurs learned about budgeting only after starting their business.
Insight 3: Hindsight
More than half (71%) of entrepreneurs say that it would have been valuable/very valuable to learn about budgeting much earlier in their life.
Insight 4: Top priorities
Cash flow management (60%) remains the top finance skill priority for entrepreneurs but budgeting and finance controls (57%) are also top of mind.
Insight 5: Future analysis
48% of entrepreneurs say financial analysis will be a valuable financial skillset looking towards the future, expecting a closer relationship between this and their cash flow and budgeting skills.
Evidently, entrepreneurs do not have a lot of confidence in their budgeting skills. They realise it is something they should have learned earlier but are now catching up on as a priority. In the future, entrepreneurs want to be in a position to critically analyse and use the data and insights that make up their budgets.
Learn. Do. Share.
So, what are the actions we can take from these insights?
For entrepreneurs: Do you have a finance-oriented entrepreneur or advisor in your circle of peers to interact with regularly?
For educators: How are you empowering entrepreneurs to critically analyse and use a budget?
For brands: What tools or services can you offer to entrepreneurs that will help them balance their time constraints to review their budgets?
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