We are all aware that every penny counts when you are running a small business. If you’re not tracking exactly where every penny is going you could be missing out. You may miss out on opportunities to cut your costs and put your money where it will have a bigger impact. Creating a small business budget is vital if you want to keep track of your spending. So where do you start and how can you go about it the right way? The good news is we are here to help. Read on for more small business budget tips.
What Exactly is a Business Budget?
A business budget is one that outlines where you will spend your month on either a monthly or a yearly basis. When you create a budget, you give every single penny a job, and you do this based on the best use of your money. One of the benefits of having a budget is that they allow you to go back and see where your money really went.
A budget can, therefore, help you to:
- Forecast your earnings
- Decide where to spend the earnings
- Realise the difference between your budget and reality
The Best Kind of Budget
The best kind of business budgets are flexible and simple. When and if circumstances change your budget can change slightly while giving you a clear idea as to where you stand. The best kind of budget should include:
Your Estimated Revenue
Your estimated revenue is basically the amount of money you expect to make from the sale of services or goods. This is how much money you will bring in regardless of how much cash you spent on the way. Your estimated revenue should feature on your budget’s very first line. The revenue can be based on last year’s figures or, if you’re a start-up, on the industry’s average figures.
Your Variable Costs
Your variable costs will change according to how much you sell or produce. These figures are somewhat related to the costs of goods (or services) sold. In other words, anything that is related to the purchase or production of your product or service that your business sells. Variable costs can include travel costs, credit card fees, raw materials, production costs, sales commission and anything that is likely to vary from month to month.
A budget will help you to outline what you are likely to spend on all the above costs.
Your Fixed Costs
These are all of those regularly consistent costs that will not change. These costs include rent, bank fees, legal services, utilities, insurance, leasing costs and so on.
Your One-Off Costs
One-off costs are different to the costs that your business usually has. These are costs such as buying new software, moving offices and any costs that are related to researching and launching a product or service.
Your Cash Flow
Your cash flow relates to the money that is travelling into and out of your business. If you have money coming into your business, there is positive cash flow. However, this is only the case if you have more money coming in (than going out) over a specific period of time. Your cash flow is calculated by subtracting the sum of money that you had at the beginning of the specific period by the money you had at the end of that same period.
Ideally, you will monitor your small business cash flow every single week, or on a monthly basis at the very least. It is vital that you check your cash flow as you may have a lot of money coming in but you may not be able to pay your suppliers.
Your profit is the amount of money that you take home with you after you have deducted your expenses. If you have a lot of profit it means your business is growing. You can also plan how much profit you intend to make. The figure you come up with will be based on your expenses, projected revenue and the cost of goods or services sold.
If you find that your profit margins are not what you would like them to be you may have to think about increasing the cost of your goods or services sold.
A Budget Calculator
A budget calculator can be very helpful. It can help you to see where your business is at any given moment. Putting those all-important numbers in your budget is vital and will mean your budget is easy to read.
Create a spreadsheet that has a summary page. The summary page should have a row for each of the above budget categories. Next to each category list the amount of money that you have budgeted. Now create a column on the right and make a note of when the specific time period ends. Use this column to help you list the amount of money that you spent in each of the categories. This will give you an idea as to how much your budget is and how well it is performing.
A small business budget does not need to be complicated, but it does need to be readable and work for you. When you have a small business budget in place, you will have a better idea as to how your business is performing.