Budgeting is just as important to the small business owner as it is to major corporations. It helps control those ebbs and flows that most small businesses experience throughout the year.
By having a budget, the business owner can use the extra money gained to purchase needed products or supplies, to market and promote the business, hire needed employees, and when there is a decline in sales, the monthly budget will prevent the business from failing because the owner knew when to cut back on certain expenditures.
Creating a budget doesn’t have to be hard or complicated, to get started you can draft a budget based on your prior year’s profit & loss report. Once the budget is created, review your income and expenses and make any needed adjustments based on your business plan for the upcoming months. Now when you run your monthly financial reports, you will be able to monitor your monthly budget against your actual numbers allowing you to quickly analyze those items with large budget variations and make any needed adjustments.
Step 1: Tally Your Income Sources
The first element of a good business budget is figuring out how much money you bring in on a monthly basis.
Start with your sales figures first and then go further by adding other income sources you use to run your business.
Step 2: Determine Fixed Costs
Fixed costs are expenses that are charged the same price each month. As you can imagine, incorporating these is by far the easiest part of creating your business budget.
Step 3: Include Variable Expenses
Items that don’t have a fixed price tag each month are called variable costs. Many of these purchases can actually be scaled up or down depending on the state of your business, using your monthly profit. Your profit each month will be determined by the earnings you’re left with after paying all your costs.
So, if your business does better than you forecasted, you can use the extra funds to increase variable spending enabling you grow faster.
Step 4: Predict One-Time Spends
A great perk of creating a budget is now you will be able to factor in one-time purchases better than ever before. While some of these items may come up unexpectedly, like the purchase of a laptop to replace the one that crashed, others can be budgeted for months in advance, like that business retreat you’ve been eyeing, to protect your business from financial burden.
Step 5: Pull It All Together
The first four steps of this post detail the elements of a good business budget, so the last step is simply pulling it all together.
Remember, your budgeting is another way of goal setting. The budget should reflect the direction you envision for your company. By having a budget, it is just another tool in your toolbox that will help you in taking your business to the next level.