How to Create a Budget for My Small Business
Owning a business provides you with the exciting opportunity to be your own boss, realize your vision, and control your financial future. However, you must be able to construct a small business budget to avoid failing within the first year of your business.
What is a business budget, exactly? A business budget is a forecast of a company's income, expenses, and earnings over a given time. A successful budget will often designate a purpose for every dollar it aims to earn monthly, quarterly, or annually. The business budget will show you where you're spending your money and where you might be able to save money, allowing you to make smarter spending decisions and increase profits over time.
A business budget has several significant advantages, one of them allows you, the business owner, to run your company with confidence. It will also enable you to spot any spending or cash flow issues quickly. Finally, it will demonstrate sound financial management to your creditors and investors.
Let's talk about the steps to generating that small business budget now that we know what it is and why it's necessary.
STEP 1: COMPUTE ALL TYPES OF INCOME
Your gross income will show you just how much money you have on hand to spend, and watching it over time will show you if your revenue is increasing or stagnating, indicating that it's time to change your rates. Refer to the revenue column of your profit and loss statement to see how much money you've brought in over time.
STEP 2: SUBTRACT YOUR FIXED COSTS
After calculating your overall income, you'll need to deduct your fixed expenses. These are the charges that are primarily constant throughout the year. Consider rent, mortgage payments, and any other such costs. Those costs, for the most part, don't change.
STEP 3: SUBTRACT OUT YOUR VARIABLE COSTS
You may have variable and fixed costs, which aren't necessarily the same every month. Materials expenses, outsourcing fees, and commissions are examples of these costs.
STEP 4: PLAN FOR EMERGENCIES AND ONE-TIME EXPENSES
You may have had some unexpected expenses as a business owner. New staff or unanticipated emergencies, for example. So let's plan as much as possible by putting money aside to cover these unanticipated eventualities.
STEP 5: DRAFT THAT BUSINESS BUDGET
Now that you've evaluated your profit and loss statement and calculated your budget income and expenses, it's time to construct that business budget. The majority of businesses use an annual budget that is broken down by month. However, a smart company budget will follow the format of your profit and loss statement, allowing you to compare actuals to budgeted figures throughout the year.
STEP 6: DO A MONTHLY ANALYSIS
You must keep track of your budget frequently for it to be valid. Perform a monthly study at the very least to evaluate if you have more revenue coming in than costs going out. You can better understand your financial situation and determine whether changes or cuts are required to make your firm more lucrative by regularly monitoring it. You may also spot trends and changes and make modifications to budget more appropriately in the future.
Small business budgets for different types of companies
Budgeting is especially vital if your business has a busy and slow season.
A budget gives you a good perspective of previous and present data to estimate future cash flow because your firm isn't consistent every month. This forecasting method allows you to recognize annual trends, determine how much money you'll need to get through the slow months and seek cost-cutting options to counteract the low season. You can utilize your downtime to prepare for the coming year, negotiate with vendors, and engage customers to establish loyalty. However, don't expect the same thing to happen every year. Forecasting, like any budget, is an ongoing effort. Start with what you know, and if you don't, make the best assumption you can. It's preferable to put money aside for an emergency that never occurs than to be caught off guard.
Shipping is the most critical budgeting factor in eCommerce, and shipping expenses (and possible import duties) might significantly influence it.
Is there enough money in your budget to cover client shipping? If so, do you have a cost-effective alternative strategy in mind, such as flat-rate shipping or real-time shipping quotations for customers? Shipping charges are affected by packaging, so keep that in mind when calculating your cost of products sold. Consider any overseas warehousing expenses and tariffs while you're at it. You'll also want to provide your customers with the most satisfactory online shopping experience possible, so pay for a reliable web hosting service, design, product photography, advertising, blogging, and social networking.
Consider your cost of goods sold if you need to stock up on inventory to fulfill demand. Take a best guess about the inventory you'll require based on last year's sales or industry benchmarks. A little research ahead of time helps guarantee you're getting the best pricing from your vendors and sending the proper amount to meet demand, reduce shipping costs, and stay within budget.
Your pricing may be affected by the amount of inventory you have. For example, if you order additional stock, your cost per unit will be lower, but your total cost will be more significant. Make sure this is taken into account in your budget and pricing and that the quantity ordered does not exceed actual demand. You may also need to factor in the expense of storage or disposal of excess inventory.
You should keep a few best practices in mind when creating your business budget. It would help if you first went over your financial statements. Look for places where you can improve and refine as needed. After all, your budget isn't set in stone; it may be adjusted as needed. The next step is to create goals and prevent wishful thinking. In the end, it's better to be a little more conservative with your budget than to hope for the best. Break down your finances into areas where you've had success and where you can improve, then reproduce that performance and continue to search for ways to improve your business finances. This will result in increased profits in the long run. Building a business budget might be intimidating, but it's necessary to maintain financial stability and take your company ahead.
Budgeting is a simple but essential procedure business owners use to estimate (and subsequently match) current and future revenue to expenses. The goal is to make sure that there is enough money to keep the firm running, grow it, compete, and have a good emergency reserve.
PROFIT bank is the only bank for small businesses that allows you to create and assign budgets to managers and easily add employee debit cards to your budgets in order to control your spending. At PROFIT Bank we value the importance of small businesses, thus, we offer free banking and bookkeeping for you! We aim to help small businesses succeed by providing an all-in-one bank account with built-in accounting software that simplifies budgeting and bookkeeping so you can make better financial decisions. We offer free banking and bookkeeping to all our members. We help speed up the accounting process, align your financial data with your bank statement, and automatically match transactions for reconciliation. All the relevant information is in one place and immediately synchronized. We do all the bookkeeping for your business without an additional charge.