If you want to protect the financial health of your small business, it is important to run it on a budget. To do that, you need to know how to create one. When you build a business there are many areas you need to remain on top of, from finding new clients and marketing to building a website and growing an online presence. One area that you need to make sure you are on top of at all times in your budget.
Look At All Your Income
The first thing you need to look at when creating a small business budget is how much money is coming in and where from. It’s a good idea to use a Profit & Loss report. You can add in any sources of income through the month. Depending on your model you may have several sources of income, for example, a freelancer may work with numerous clients and be paid on different days of the month. Tally them all and gather a clear picture.
Determine Fixed Costs
Once you have a picture of your income, you need to have a picture of your costs. Starting with any fixed costs. These are the costs that are likely to stay the same each month. This may include rent, internet, website hosting, some utilities, the red diesel price, etc. Look through your bank statements and account reports and see which costs stay the same or around the same each month. If you round them up to the highest expected cost for the month, then you will be able to start building your budget.
Include Variable Expenses
Variable costs are subject to change each month. You may find that if your profits are higher then your variable expenses will be higher too this is because of things such as extra shipping costs, overtime costs, and extra utility costs such as heating. If your profits are lower but your variable costs are high, try your best to find ways to reduce these. They are usually easier to make cuts than with fixed costs.
Plan One-Time Spend
Of course, there will be one-time expenses that happen when you haven’t planned such as an emergency happening in the workspace such as the kitchen needing repairs. But, with other things such as software updates, machinery updates, and others you can predict when they are going to happen and plan them. This way you can factor them into your budget. This way you can guarantee you are able to cover the expenses and can also identify the best timing for your business. If you don’t have any upcoming costs, you should still factor expenses like this into your budget in the form of a buffer for anything that becomes unplanned such as damaged stock or a company laptop.
Spending some time to create a budget may seem like a bit of a hassle, however, it is certainly worth the effort. Budgeting thoroughly will provide you with financial insights and enable you to make the right choices for your business to scale, grow, and succeed in the future.