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How to budget for your small business

budget

Budgeting for your small business is an essential planning tool. By being aware of how much money you have and how much you could raise in the future you can make calculated decisions on how to push your business forward. A small business budget looks at your estimated income and expenses over a period. The three main reasons why it is important to create a budget is so that you can plan for the future, manage your cash flow and secure financing from banks and lenders. Here are the steps to creating a small business budget.

List all your income streams

Look at all the places where you get money from. If you are just starting out, then look at other business in your field. Go to businesses which are for sale and see what kinds of sales the company was making. You can also go online and look up what the expected sales are for your product or service in your chosen field. By doing this type of research you will be able to make a more accurate estimate of your income. Items you can consider under income are hourly earnings, product sales, loans, investment income and savings.

List all your fixed expenses

Fixed expenses are the ones which remain the same from month to month. Here we are looking at rent, equipment rental, salaries, insurance, cell phone and internet. You can get estimates from suppliers before you start your business to get a good idea of what your fixed expenses will be.

List all your variable expenses

These are the expenses which will change from month to month. Raw Materials, commissions, marketing costs, transportation, printing and travel fall into this category. Try to get quotes from a variety of suppliers so that you can make sure that you get the best price for the goods you need to purchase.

List once off expenses

Once-off expenses refers to items which you will only buy once in a while. They may be unexpected like when your computer crashes and you need to replace it or they can be something you have planned for. Like buying better equipment to help you grow the business.

Consolidate the information on a spreadsheet

Take the information you have gathered in the points above and put them on a spreadsheet. You will then be able to see how much income you expect to get and how much you expect to spend. If you do have money over you can look into re-investing it into your company or putting it into a rainy day account for when you have a slow period in your business.

By creating a budget, you will be able to compare your actual figures against the estimates you made during the planning process. Furthermore, you will see where you are spending money excessively and see how you can cut costs to help improve your profit margins. Many entrepreneurs do not consider creating a budget as important but it is essential for your company’s financial health. It can also help you gauge whether you can afford to purchase new equipment to help grow your business into the multi-billion enterprise you always dreamed of.

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