“Planning your business budget helps you prepare your business for a constant cash flow. You can create a business budget in 8 power-packed steps”
Starting your business seems to be the most exciting thing, isn’t it? You have decided what your business is about, what your niche is, who are your ideal clients, which platform you would market your business on. Kudos to you!
But, what about your budget?
Your business budget is the hero of your business. And you forgot to plan it! How? Your business budget is the foundation of your entire business and you can’t leave it unplanned and jump into starting your business blindly.
Don’t be scared.
If you have hopped here, you have saved yourself from the terrible mistake. We will tell you how you can create your business budget and run your business like a pro that you always consider yourself.
What is a Business Budget?
Business budget ensures the cash flow of the is a financial statement of the business for determining the profit with revenue and cost.
Why Do We Need a Business Budget?
Let’s be honest about running a business, it’s super crazy. But it can be exhausting and overwhelming if you don’t make finances your best friend. If you are wondering what would happen, then let me throw some light.
“How much profit did we make this month?”
“How much sales did we make this month?”
“Did we meet our financial goals or not?”
“How much money did we spend on this project?”
And the list of your whats and dids goes on & on…..
A business budget helps you:
Identify the costs for starting and planning the business
Estimate business cash flow to understand if you can meet expenses and find new projects
Make changes based on the actual business performance
Predict slow months and prepare for them
Obtain business loans from banks
Stay out of debt
Understand where you should spend and where you should control the business expenses
How To Create a Business Budget?
Creating a business budget is not a science, just a little bit of math and focus. Did we say math? Don’t panic, it's easier done than said. Here is the step-by-step guide that you need to follow to plan out your entire business budget:
1) Examine your Revenue
The first budget exercise you should do is, gather your financial information. Do this by looking at your business’s past performance and identify your income sources. Once done add all the income sources to discover your monthly income.
To find out your income, calculate the revenue and exclude profits. Your revenue sources include:
Income from assets, sales
2) Subtract Fixed Cost
Fixed cost is the recurring cost that helps you conduct your business operations.
These costs occur daily, weekly, monthly, or even yearly. These fixed costs could include:
Supplies for your business
Depreciation of assets
Website hosting expenses
Leased furniture and equipment
These are some of the common fixed costs that every business involves. Remember, every business is different and the expenses of every business would be different. Identify these costs based on your business. Once you have identified your business costs, subtract them from your income.
3) Determine Variable Expenses
Variable expenses are the costs that change from time to time to meet your business needs. These expenses change from month to month and can either increase or decrease depending on how well your business performs.
Some of the variable expenses include:
Utility costs – including water and electricity bills
Maintenance & repair equipment
Employee salaries & benefits
Education & training
Advertising & Marketing costs
Independent contractor payments
When you go through slow months, keep your variable expenses low and increase them on profitable months for long-term growth. While all the variable expenses can not be lowered, you can analyze the ones that can be controlled.
4) Keep Contingency Funds Separately
Keep a special seat reserved for yourself. Contingency fund does that for you.
A contingency fund prevents you from the last-minute or unexpected expenses, especially when you have a restricted budget.
Set aside the sales you made from customers
Save when you are making business profits
encourage your employees to reduce business expenses
transfer your saving to your saving account
Introduce annual cost-cutting measures
5) Create your Profit-Loss Account
Once you have gathered all the information, put them together to create a profit loss account.
To do this, add all your monthly expenses together. Subtract your expenses from your business income. The number you get is the profit that you make each month and each year. Keep a track of how much money you collect and spend each month. Do this throughout the year.
By doing this, you will understand where your business stands. If you are making profits the entire year, you could expand it further based on the profits
6) Outline 12-month Cash Flow
Do you want to start your month blank without knowing how much profit you will make? Well, in that case, you will make nothing more than losses. Scared? To avoid this, plan your business cash flow for a year in advance. Yes, planning saves you and gives you a direction.
So how can you do it?
Look at the sales projections and identify fluctuations
Write down revenue in the month you receive it and not when you send invoices
consider recurring variable expenses
analyze unexpected costs and keep 5% to 15% of your monthly revenue aside
add all the numbers and open a balance sheet with your projected revenues with specific periods
7) Use Software to Maintain the Budget
To create a budget, you can use one of the old methods that are creating a budget plan on Excel or Google Sheets. Though an excel sheet is an easy way to plan out your budget, it is complicated. To smooth your process, use budget planning software like Mint and Netsuite. These softwares have predefined business categories where you can store your income, transactions, and expenses.
8) Plan Budget Reviews
Let’s be honest. Not every month is the same for you. You will struggle with losses. But you can prevent them. How? By reviewing your budget at the end of each month.
At the end of each month, sit down with your team and create the excel sheet. List down the accomplished goals and the profits you made. List down the unaccomplished goals too. If you made a loss the existing month, plan out how you will convert it into profit the next month.
We understand as adventurous as your business seems to you, it can disappoint you too. But you can avoid most of the things by simply planning a business budget.
Before wrapping up, let’s look at the things that we understood:
Use softwares like Mint & Nrtscape to smoothly manage your budget planning
Have a separate account in place for your contingency funds
Examine your previous year’s revenue
To find out your monthly income, calculate all your fixed and variable expenses
Review your budget pl;an at the end of each month to stay on track and scale your business
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