A business budget will help you clearly see where your money goes and can help you make financially healthy business decisions. Take any guess work out of hiring, purchasing equipment or funding a retirement account by understanding your cash flow.
Even if your business is new, you need a budget. Your budget is an educated guess about your income and expenses so you have something to refer to when making financial decisions. The longer you use a business budget, the more information you will have about how your business works, your profit and how you can best invest in growth.
Use these steps to create a basic budget for your small business.
Add up your income. The income from a small business can vary from month to month and throughout the year. Take a look at your past six to twelve months of income to get an average you can work with. Your budget will need to be updated monthly to account for changes in income and expenses, but you need a baseline to start. The longer you have been in business and tracking income, the more accurate your budget will be.
Plan for fixed expenses. Your payments that don’t change are easy to plan for. These include mortgage, car and other loan payments, utilities, rent, payroll and services such as website or brand management.
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Estimate for variable expenses. Your business will also have expenses every month that are inconsistent. Your cost of supplies, subcontractors, gas and more will need to be estimated. At the end of the month, you can readjust your budget to reflect the actual amount you spent in each area. After tracking your expenses for months, you’ll start to see patterns in these variable expenses and be able to better plan for them.
Predict one-time expenses. You know when you’ll soon need a new computer, truck or piece of equipment. Predicting these expenses and saving for them will give you a cushion in your budget when you need to make a large purchase.
Create a big picture budget. Pull together all the information you have gathered to create a one-page budget that is easy to understand and work with. Your total income minus your total expenses will give you a net profit. If this number is negative, you’re spending more than you make. From your itemized list of expenses, you can make good decisions about where to cut expenses. If you have a high net profit, you can decide what you want to invest in to grow your business.
Create a future-oriented budget. Once the month is over, you will have data to see how accurate your prediction was. With this data, you’ll be able to make better estimates about the next month’s income and expenses. The more you understand about your cash flow, the more fiscally responsible your business will be. You’ll feel confident that you understand your income and expenses and can make the best spending and investment decisions.
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