How to Create a Business Budget for Small Business – Guide
But before you can focus on budgeting, you need to figure out what aspects of your business you want to improve. So you can decide what to do with your money. Based on this list, you can set short-term and long-term goals. These goals are directly affected by the money that comes in and goes out. A short-term goal might be to pay off debt or purchase new equipment. Long-term goals like saving on marketing spend are critical as they are tied to the overall growth of your business. They should be practical about the goals you’ve set. They should be based solely on your company’s ability to spend and save. Once you’ve set your goals, you can create an effective, foolproof budget by following these steps. If you create a rough budget and then realize you need more money to run your business, it will hurt your goals. Your budget should be such that you can increase your sales and profits enough as your business expands to meet your growing expenses.
Your estimated revenue
This is the amount you expect to earn from selling goods or services. It’s all the money you bring in the door, regardless of what you spent to get there. This is the first line of your budget. It could be based on last year’s numbers or (if you’re a startup) based on industry averages.
Your fixed costs
These are all your regular, consistent costs that don’t change based on how much you earn — things like rent, insurance, utilities, bank fees, legal and accounting services, and equipment leasing.
Your variable costs
Variable costs may include raw materials, inventory, production, packaging or shipping costs. Other variable costs may include sales commission, credit card fees, and travel. A clear budget plan outlines what you expect to spend on all these costs. The cost of wages can fall into fixed and variable costs. For example, your core in-house team is often associated with fixed costs, while production or manufacturing teams – anything related to producing goods – are treated as variable costs. Make sure you record your different salary costs in the correct area of your budget.
Your unique costs
One-time costs are outside of the normal work your company does. These are start-up costs such as moving offices, equipment, furniture and software, as well as other costs related to launch and research.
your cash flow
Cash flow is all the money that comes in and out of a business. You have positive cash flow if there is more money coming into your business during a certain period of time than going out. This is most easily calculated by subtracting the amount of money available at the beginning of a given period of time and at the final. Since cash flow is the oxygen of every business, be sure to monitor this weekly, or at least monthly. You may be raising money and still not have enough money to pay your suppliers.
your profit
Profit is what you take home after deducting your expenses from your income. Growing profits mean a growing business. Here, you will plan how much profit you plan to make based on your projected revenue, expenses, and cost of goods sold. If the difference between income and expenses (aka “profit margins”) isn’t where you’d like it to be, you need to rethink the cost of goods sold and consider raising prices.
A budget calculator
A budget calculator can help you see exactly where you stand when it comes to business budget planning. It might seem obvious, but getting all your budget numbers in an easy-to-read summary is really helpful. In your spreadsheet, create a summary page with one row for each of the budget categories above. This is your basic budget structure. Then, next to each category, list the total amount budgeted. Finally, create another column on the right — when the period is over, use it to record the actual amounts spent in each category. This gives you a snapshot of your budget that’s easy to find without diving into layers of crowded spreadsheets.
Final note
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