When roofers launch their own businesses, they focus on having the right tools, materials, and licensure for the job. But many overlook an element crucial to success — budgeting.

According to the U.S. Small Business Association, most startups turn to personal or family savings for capital. But with only a vague understanding of managing household and professional expenses, some of these new businesses face the risk of failure.

Budgets — both personal and professional — provide insight into future needs, spending, cash flow and profits. They help detect financial problems before they spiral out of control. Distinct budgets draw a clear line between different types of expenditures and liabilities, which can ultimately protect personal and business assets, Anita Campbell, founder and CEO of Small Business Trends, says.

“Business owners should not use a business bank account for personal use,” Campbell says on her website. “It’s a bad practice that can lead to other issues, including legal, operational and tax problems. As the company grows, the problems will also grow. That is, if the company is able to grow. Many businesses operated in a fiscally lax fashion don’t grow the way they should or could.”

Budgeting 101: Understanding the Basics

Sharon Lechter, a licensed CPA, entrepreneur and author, says professional and personal financial blueprints share many similarities, including outlining objectives, savings and progress. Basic business budgets include other elements, such as:

• Sales and revenue
• Fixed cost items (such as rent)
• Variable cost items (such as materials)
• Debt repayment
• Income fluctuations or one-time events

When creating a new budget, professionals recommend business owners follow some fundamental tasks:

1. Learn basic accounting and bookkeeping lingo.
Anyone who runs a company should be able to comprehend accounting and bookkeeping terminology. Words that include “asset,” “revenue” and “accounts receivable” will become part of everyday language and essential to having balanced books.

2. Determine which financial documents are necessary.
Three primary documents — balance sheets, profit-and-loss statements, and cash flow statements — are the cornerstones for tracking finances.

3. Consider consulting with a professional.
A certified public accountant (CPA), bookkeeper or enrolled agent can address specific questions.

Tips for Business and Household Budgeting

Forbes magazine recommends the following for businesses to forecast their finances successfully:

1. Determine which type of budget to use
Financial experts say there are up to 10 types of budgets for businesses, including operating, cash flow and static. Consult a financial professional to decide which would work best.

2. Know the industry
Before developing a long-term financial outlook, look at the various factors that impact the roofing industry and personal productivity. In some areas of the country, roofing is a seasonal business, so a quarterly approach to budgeting might be best.

3. Be realistic
Develop a budget based on past results and realistic expectations. Look at the roofing industry locally to identify the needs and find fluctuations in the market.

4. Budget conservatively
Expect the unexpected by planning for unanticipated costs and expenses. In an economic downturn, a conservative budget helps small companies ride out the storm. In strong economic years, it can help build an emergency fund.

5. Pay yourself
Establish the type of compensation – a salary or owner’s draw – that works best based on the company’s classification (sole proprietorship, S corp., LLC or other). Establish a payroll calendar for a regular salary. Speak with a financial professional for specific guidance.

6. Build business credit responsibly
Credit that is tied to your employer identification number (EIN) establishes a baseline of creditworthiness for your business. Good credit is created by quickly paying off business debts, such as loans, credit cards and trade lines.

7. Focus on details
From the beginning, take the time to detail revenues and expenditures for a close look at finances. Over time, owners can fine-tune their accounting practices.

When it comes to household budgeting, roofing company owners should consider other tips:

1. Know your baseline home budget
Calculate the amount needed to cover household expenses on a bare-bones budget with only the absolute essentials, such as housing, food and transportation.

2. Prioritize your expenses
Determine which of your expenses need to be paid first (such as rent/mortgage, food and transportation) and which can be paid second or eliminated if needed (like cable TV, eating out and gym memberships).

3. Plan for slow months at work
As a self-employed business owner in a climate-driven profession, there are bound to be slow months on the job. Establish an emergency savings fund to be used when work is slow or unexpected expenses pop up.

4. Allot for free time and fun
Don’t forget that free time and fun are essential to living a happy life. Creating a line item for entertainment allows for a balance between financial responsibility and good living.

5. Include family
Find ways to discuss with family members aspects of the finances and how they will impact their lives. Ask for input and recommendations.

After formulating a plan for spending and saving, roofers need to find user-friendly tools that take the guesswork out of finances.

Tools to Build a Better Budget

Luckily, financial tools are more accessible than ever. Many of the resources used in businesses can be for personal use and vice versa. Consider the following options for both personal and professional budgeting:

• Software—
  Some of the more popular accounting software choices are QuickBooks Online, Freshbooks and Xero.
• Apps—
  Mint and YNAB provide great options for both personal and business budgets.
• Spreadsheets—
  Google Sheets and Microsoft Excel allow for personalized worksheets.
• Billing—
  Cloud-based billing systems such as Bill.com and HoneyBook provide quicker access to payments.
• E-commerce—
  Financial tools such as Apple Pay and Venmo allow customers to pay immediately.

Lechter, who has worked with major brands that include Disney and Time Warner, says new business owners who already run a household budget have an advantage. “In some sense, everyone is a small business owner,” she states on her website. “That’s because keeping a household operating in the black requires many of the same skills necessary for running a business. That overlap can be a huge positive for new entrepreneurs, as they can draw on the skills they’ve cultivated while dealing with their own household finances. In both the home and office setting, budgeting is an essential task.”