Starting to Build Your Small Business Budget
(Small Business Budget) There are many things on your to-do list when you are a small business owner, but one of the critical tasks is making a budget.
It gives you a clear picture of what your money is doing and where it is going. Otherwise, you’d end up like the 18% of employees earning $100,000 but are living from paycheck to paycheck, according to a Willis Towers Watson survey.
With a budget, you make good decisions about allocating your resources, such as small business loans that cover the costs associated with starting or expanding your business. By implementing budgeting basics, you set yourself up for success.
We explore how you can build a small business budget.
Benefits of Having a Good Budget for Your Small Business
A well-constructed budget is an essential tool for any small business. It aids in making sound financial decisions that will benefit your business, such as:
Identify financial problems early: small business budgets are flexible, unlike large corporations with rigid spending limits.
The sooner you realize something unexpected isn’t getting funded or is out of control, the faster you can take corrective action.
Make financial plans: a small business budget helps estimate revenue and expenses for a specific period in the future, giving you a good idea of expected income and potential earnings within that time frame.
This information helps determine if you need to expand the business that requires taking out small business loans or hiring more employees.
Evaluate whether or not you’ll need financing: budgeting tools like Quickbooks evaluate how much revenue you’ll have coming in each month that is sufficient to pay off any small business loans you might have taken and to cover other expenses.
Track trends: you’ll see patterns in your spending that might indicate potential problems with certain aspects of your business, like marketing costs or the break-even point.
Make better decisions: a budget helps make informed financial decisions. For instance, if sales projections are less than expected, you can strategize on ways to boost revenue, such as holding a sales promotion.
First Steps to Build a Strong Budget
When listing your projected income and expenses for the year, you get a general idea of how much money you’ll need to operate the business.
Divide it into more manageable amounts, say weekly or monthly. That makes building your small business budget easier.
Next, decide on expected revenue by determining exactly how much sales you expect to make over a given period. Then figure out how much overhead this amount will cover, like rent or utilities.
Once you’ve determined how much income you’ll need, figure out how to reach this revenue goal to gain an idea of your gross profit margin.
For example, if your average sale is $85 and your overhead costs are $40 per month, then to reach the annual gross profit goal of $10,000, you need to make at least 124 sales.
From there, divide expenses into categories like marketing, rent, salaries, and utilities to understand how much money you’ll need to spend in each area to maintain the business.
Evaluate your business to find opportunities for improvement, and make a sensible small business budget.
Main Aspects to Consider in Your Budget Plan
There are several main aspects you need to consider when creating your small business budget:
a) Fixed and Variable Expenses
Fixed expenses stay the same each month, such as your rent. Variable expenses change monthly, such as the cost of goods sold or advertising. Understanding both of these expenses helps to project your cash flow accurately.
b) Cash Flow
Cash flow defines cash coming in and going out of your business monthly. It is best to have enough flowing in to cover your fixed and variable expenses.
c) Revenue Projections
It is essential to estimate how much revenue your business will generate each month to help determine how much money you’ll need to cover expenses.
d) Plan for Unforeseen Events
Small business budgets help prepare for changes in advance, so you don’t struggle with surprise bills. You have to create a financial safety net, so the business keeps running smoothly in the face of unforeseen financial circumstances.
e) Monitor and Re-evaluate Regularly
The business environment keeps changing; hence you have to monitor your budget plan. That way, you can re-evaluate your budgetary allocations to stay ahead of the curve.
In short, the main points to remember about small business budgeting are:
- Understand your business situation
- Make realistic projections for the future
- Prioritize expenses
- Factors in one-time costs, like start-up fees or marketing campaigns
- Save up enough cash in case of emergencies
Valuable Tools for Building a Small Business Budget
Every small business needs an array of budgeting tools. They are vital for helping evaluate your small business budget and making improvements.
BizOps: is an online, integrated small business management tool that provides all the essential parts of a budget for companies with fewer than 100 employees. BizOps offers free customer support and manages budgets, tasks, schedules, projects, and invoices.
Freshbooks: small businesses can use Freshbooks to create and view budgetary estimates. That entails sending invoices, tracking payments, and managing expenses.
Wave Accounting: this free online accounting software helps you manage your finances, send invoices, and track payments to keep track of your business’s financial progress. One of its key features is automatically sorting personal from business expenses.
QuickBooks: is one of the most comprehensive budgeting tools you could have. Apart from helping with accounting, QuickBooks aids in quickly tracking expenses, inventory, and sales. It particularly shines when you need to generate reports such as profit and loss statements, vital for budgeting.
PlanGuru: as its name suggests, the software stands out for its highly detailed financial planning. It contains robust analytics and forecasting capabilities you can exploit to budget 20 years into the future.
Xero: the online-based software provides a unified platform where you can track all your budgets, invoices, and accounts. It has tools to track your business’s financial reports, cash flow forecasts, and income and expenses.
Expand your Small Business Budget!
Starting a small business can be difficult, but you can turn it into a successful venture with careful budgeting and planning. Budgeting tools are vital in such instances as they can help detect financial problems early and make better financial decisions.
Follow the link in the introduction section for more information on securing small business loans to purchase budgeting tools for building your business budget.
