Making a budget for your business involves more than simply taking expenses away from income. Your small business budget should provide an overview of your company’s financial outlook. A budget is a key part of running a business, especially if you’ve applied for quick business loans and need to monitor the money you’ve borrowed.
But for many small-time entrepreneurs, making a comprehensive budget can easily fall by the wayside. As of 2018, 61% of small business owners failed to create a formally documented budget. What’s more, around 37% of companies with budgets spent more than they budgeted.
This can be an issue since budgeting is important for long-term financial planning and unexpected costs. If your small business lacks a budget, don’t worry! It’s not too late to create one. To help you begin, here are six steps to make a small business budget that suits your needs.
1. Check Out Similar Budget Plans within Your Industry
Creating a budget for your small business can be a little overwhelming, especially if it’s your first time making one. Before you dive into it, it helps to familiarize yourself with the industry standards. You can research online and check out the IRS site to find out the common expenses and revenues for a business similar to yours. You can also interview other small business owners who work in the same industry.
2. List Your Sources of Income
How much money do you make per week, per month, or per year? Listing down your sources of income lets you create a small business budget. First off, list your sales figures – you can check them out using your profit and loss statements – and then factor in your other income sources as well, such as business loans, investment income, or hourly earnings.
3. Include Fixed Costs and Variable Expenses
Fixed costs are expenses that do not change every month. These are your rent/mortgage, employee compensation, internet bills, utilities, quick business loan fees, insurance, and more. Identifying and calculating the fixed costs is the easiest part of creating a budget. Just review your financial statements and you can easily identify your fixed expenses and the amount it costs per month.
On the contrary, variable costs are the expenses that are not fixed. This can include marketing costs, advertising, raw materials, travel, and events. Using your monthly profit, you can adjust these expenses depending on your needs.
You’ll be able to calculate your profit per month by the earning you’ve left after paying your fixed and variable expenses. If your business does better than expected, the extra funds can be used to increase variable spending.
4. Preempt One-Time Expenses
One of the biggest benefits of creating a budget is that you can set aside money for one-time purchases, such as computers, furniture, office supplies, etc. While some of these purchases may come up unexpectedly, others can be budgeted in advance.
5. Review and Change Your Budget Regularly
As your business grows, don’t expect your expenses, revenues, and needs to stay the same. For this reason, it’s important to monitor the money that goes in and out of your business and adjust your budget plan accordingly.
6. Consult a Financial Professional
As mentioned, creating a budget can be overwhelming. However, don’t stress yourself out! If your hands are full of all tasks and deadlines, don’t hesitate to ask for help from a reputable financial advisor. They can help you identify possible risks, provide appropriate solutions, and create a more detailed financial forecast and budget plan.