5 Steps to Your Business Budget (that actually works)
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“Ignorance is [not] bliss.”
Even though it can be easy to ignore knowing the specifics of your business’s finances, business owners who do not have a good idea of the numbers end up shooting themselves in the foot.
A business budget is one of the best (and most necessary) tools that you can implement in your small business. It gives you insight into your past revenue and expenses so that you can predict with some accuracy what your revenue and expenses will be in the future. This will allow you to adjust your spending and investments accordingly and help you make the wisest possible financial decisions.
How do I create a business budget?
We can all agree that having a budget is important, but that knowledge is useless without actionable steps to create a budget that will actually work for you. Here are five steps to a successful budget for your small business:
1. Calculate your income
First things first: You have to know how much money you’re bringing in. Be sure to include every source of income for your business, whether that’s payment for your services or revenue from your product sales.
2. Figure your fixed expenses
Fixed expenses are those that are the same from month to month. These may include things like rent, payroll, or website maintenance. These types of expenses are very predictable from month to month and so are very easy to plan for.
3. Add up your variable expenses
Variable expenses are those that are not consistent every month. These include costs like utilities, travel expenses, materials, or commission costs – any expense that changes from month to month. While these expenses are more difficult to predict than your fixed expenses, you can still get a pretty good idea of how much cash you will be spending for variable costs with a consistent monthly budget.
4. Add predicted one-time spending costs
There are sometimes bigger, one-time expenses that come up in our businesses, and the good news is that we can add those expenses into our budget as well. If you know that you will have to buy a new computer or spend cash for a business trip, you can work that into your budget.
In addition to budgeting your one-time costs, you’ll also want to factor in a buffer for unexpected expenses like equipment maintenance or tax fees.
5. Pull it all together and analyze
Once you have assembled all the above information, you’re ready to pull it all together and use your new knowledge to make wise financial decisions going forward.
To see how much money you have to work with, subtract your total expenses (steps 2-4) from your total income (step 1).
Total Income – Total Expenses = Total Net Income
Once you know your net income, you can make decisions about how to use it to move the needle forward in your business. If your total net income is negative, then your expenses exceed your income and you either have to cut costs or find a way to increase revenue.
How do I maintain my business budget?
Budgeting is like any other tool. In order for your budget to work for you, you have to work it accurately and consistently. Develop a plan that works for your business, whether that’s updating your budget weekly, bi-weekly, or monthly. Track all of your income and expenses, and consistently refer to your budget to analyze your business’s financial health.
What will make maintaining a business budget difficult, if not impossible, are books that are inaccurate and out of date. Without accurate records, you will not have a good idea of your past income and expenses and won’t be able to accurately predict your future financials either.
Thankfully, we can help. With our bookkeeping service package, you get your own personal bookkeeping expert who offers you the one-on-one support you need to maintain accurate records. Plus, if you sign up today, you’ll get 1 month free!
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