Creating a business budget should be one of the first things you do as an owner. A budget will make operating your business easier, more efficient , and it can help to make sure that you’re spending money in the right places and at the right time to ensure you actually make a profit.
A budget can help to ensure the long-term success of your business by helping you see past next week and next month to next year, or the next five years.
A budget can benefit your business by:
- Making it more efficient.
- Pointing out funds leftover that you can reinvest.
- Keeping you profitable.
- Helping you keep control of the business expenses.
- Forecast what money you expect to earn
- Plan where to spend that revenue
- See the difference between your plan and reality
What Makes a Good Budget?
The best budgets are simple and flexible.When circumstances change, your budget can flex to give you a clear picture of where you stand at all times.
Every budget should include:
1. Your estimated revenue
This is the amount you expect to make from the sales. It’s all of the cash you bring in the door, regardless of what you spent to get there. This is the first line on your budget. It can be based on last year’s numbers or based on market research if you are just starting out.
2. Your fixed costs
These are all your regular expenses that don’t change according to how much you make—this includes rent, insurance, utilities, bank fees, and accounting etc.
3. Your variable costs
Variable costs are costs that fluctuate based on how much business you do.These costs might include raw materials, inventory, production costs, packaging, or shipping. Other variable costs can include sales commission, and credit card fees. Your budget outlines what you expect to spend on all these expenses.
The cost of salaries can fall under both fixed and variable costs. For example, your core in-house team is usually associated with fixed costs, while contractors,production or manufacturing teams—anything related to the production of goods will be variable.
4. Your one time costs
These costs fall outside the usual work your business does. These are costs like equipment, furniture, and software, as well as other costs related to repairs etc.
5. Your cash flow
Cash flow is all money coming in and out of a business. You have positive cash flow if there is more money coming into your business over a set period of time than going out. Since cash flow is the thing that keeps your business running, make sure you monitor this weekly, or at least monthly. You could be raking it in and still not have enough money on hand to pay your bills at the end of the month.
6. Your profit
Profit is what you take home after all your expenses. Growing profits means a growing business. You can plan out how much profit you can make based on your projected revenue, expenses, and cost of goods sold. If the difference between income and expenses aren’t where you’d like them to be, you need to rethink a few things in your business to increase this. ( Check out next months blog for ways to increase profit)
7. Check in
A budget does you no good if you do check in to see if you are over or under. If you wait until the end of the year it is way too late to make any adjustments. You should be checking in monthly and making adjustments based on what actually happened versus what you forcasted.
If you’re struggling to create a budget, don’t be afraid to reach out! Our team of experts can help assist you with reviewing, organizing and balancing your numbers so that you have a clear idea of where you’re at and where you want to go!
