How to Budget Your Small Business in 6 Simple Steps?
When you start a small business, there are many different things to stay on top of. From marketing and social media to finding clients, vendors, and investors. However, there’s one key ingredient that you need in order to stay on top and have a successful business—and that’s your business budget.
If you ever wondered how to create one? Well, you’ve come to the right place. In this article, you will find out how to budget your small business in 6 simple steps.
Why Do You Need a Well-Structured Budget?
First, let’s understand the meaning of a business budget and take it from there. The business budget represents an overview of your company’s financial state. Estimating revenue or expenses in advance can help owners make informed financial decisions. Remember that a top-notch budget can propel your company’s success.
When things get tough, a well-structured budget will help you identify where to cut costs and grow revenue. And, maybe it will be the only thing you need to turn things around.
If you’re planning to apply for a business loan or get funds from investors, you’ll have to provide a detailed budget that outlines your company’s financial health.
But if all this sounds complicated, these six simple tips will help you put together a great small business budget:
Total Your Income
Let’s start from the beginning. A basic foundation for a well-structured budget is knowing how profitable your business is and where the money is coming from. Identifying sources of income can help outline your future financial decisions regarding your business.
What’s important to remember here – account for all your income sources, then tally them together and calculate your total income for a specific period.
Calculate Your Expenses but Factor in Some Slack
Once you’ve done with your income, it’s time to calculate your expenses. Get started with fixed costs – the ones that stay the same each month (utilities, rent, and payroll). Besides fixed costs, all other expenses can vary. And often, it’s hard to predict what can go over budget at a certain point in time.
That’s why factoring in some slack can do wonders if unpredictable things happen.
Using projected costs can give you a perimeter of your monthly expenses. With all this information, you will be able to put some money aside ‘’for dark days’’. In case something goes over budget, this way, you will be protected in advance. Better safe than sorry, right?
Look at it this way, adding a little safety cushion for your business each month, helps in dealing with the uncertainties of the business world.
Look To Cut Costs but Don’t Underpay Yourself
This is an important decision to make! Cutting unnecessary costs automatically increase your income, but don’t forget to set pay for yourself.
New business owners put everything into their company. Wanting to save every penny is natural and normal but the thing is – the owner is still an employee of the company. Your budget, if structured properly, should allow plenty of space to put yourself on the payroll. A specific amount of income will define boundaries between your personal budget and your company’s. Isn’t that better than taking money out of your business for your own expenses?
To cut costs successfully, you need experience and a little bit of maneuvering. It’s okay to need help, and a professional accountant should make this easier for you.
Understand Your Risks
To accurately plan their financial future, business owners should count on short-term and long-term risks. Understanding possible risks can prepare you for insurance needs, emergency planning, etc.
Even for creating a budget – the golden middle is the way to go. An overly constrained budget will prevent you from overspending, but it will also slow down your expansion. This type of budget can limit your investments or the growth of your business. On the other hand, having a loosely structured budget can bring disaster to your financial health.
Taking risks is a necessity – especially in business. However, planning your budget conditions you to figure out how much risk you’re willing to take. Always remember what’s at stake – with every risk.
Review Your Budget Regularly
While many businesses review their budget yearly, small business owners should do this every month or two. Furthermore, a business can be quite volatile for small businesses and unexpected expenses can throw off income predictions. One effective tool that can assist you is establishing a budget planning calendar.
A budget planning calendar represents a schedule of activities that must be completed in order to create a budget.
If you are in control, and aware of your business budget, expenses, and incomes – you’ll be well-informed and ready to adapt anytime.
When in Doubt, Contact Professional Accountant
Don’t worry if after reading this you feel a little intimidated. Professionals are here to help you and your business. Moreover, an accountant can give you an objective opinion. Feelings you have for your business can sometimes cloud your judgment and stop you from looking at things from a different perspective.
A professional accountant will also be extremely helpful when the time for taxes comes. If you still have questions or need a piece of advice – contact YPTA and have your answers in no time!