So you’ve made it through another year without a business budget. Congratulations! It’s impressive running a business with a fly-by-the-seat-of-your-pants financial system in place.
But let’s be honest: when it comes to budgeting for a business, failing to plan is planning to fail.
But there’s good news! We’re not yet two weeks into January, which means it’s not too late to start budgeting for 2021—but you need to start today. The benefits will far outweigh the cost of time spent preparing it. Having a well-planned budget is essential for having a thriving, profitable business.
Let’s talk about the importance of a budget, and a go over a simple plan to create one.
Budgets are necessary because they help you save money and prioritize. You can plan expenditures and know ahead of time what you can and cannot afford. A budget helps predict your business’s financial future and forecasts its goals. Having a solid roadmap that outlines your profits helps you visualize where your business stands financially, and how it can succeed in the future.
Creating your budget for this year should be done intentionally and carefully.
Step 1: Figure Out Your Incoming Revenue
Revenue is the income that your business makes before expenses are deducted. Tally the revenue that is coming in from month-to-month and use that as a baseline of what you have for income.
It’s important to track all of your income so you can eventually see patterns and check out what influences your revenue. Then see how you can make adjustments to this year’s finances in areas where you fell short or overextended your costs.
Step 2. Determine Your Fixed and Variable costs
- Fixed Costs: Fixed expenses can be budgeted with confidence because they are constant amounts for specific time periods, such as mortgages and insurance premiums. Fixed costs are easy to plan for because they are set and predictable.
- Variable Costs: Variable expenses are trickier to plan because they are subject to change. They vary from month-to-month based on your business’s activity. Outline your variable costs. When changes come up in your revenue, look to the variable costs in your budget to make adjustments.
Once these costs are determined, you can plan out your monthly expenditures. If you are a new business or have not created a budget before, use projected costs to determine what you’ll be spending.
When you have tallied your fixed and variable costs, subtract that from your estimated revenue.
Step 3. Plan for One-Time Costs
Will you need a new computer? Will you have to make a down payment? These are questions that concern your one-time costs. These are the expenses that do not come up too often, but they should still be accounted for.
Step 4. Expect the Unexpected
Even with meticulous planning, you can’t see into the future. (Shocker, right?) Predict the extra costs that will most likely come up, and be prepared for them. There may be opportunities or emergencies that you will have to provide for. To prevent being gouged for unexpected costs, create an emergency fund. It’s easy to overlook, but setting aside a surplus will keep your business on track when unforeseen costs spring up.
Step 5. Plan for the Future
Knowledge is power. You can’t see into the future, but you can plan for it. And now that you have created a financial roadmap, you can follow the guide for your business’s success in the days, weeks, and months to come. You have an idea where your business stands financially, and you can make well-informed decisions for your financial future.
Quick Tips for Creating a Simple Budget
- Whether you’re budgeting for a one-man operation or a vast corporate empire, simpler is better. You do not want to weigh it down with unnecessary details.
- Nothing is set in stone. What you plan for your business is just that, a plan, and plans change. Keep it simple so that if you do have to make alterations, it will not become a major overhaul.
No one starts a business because they want to constantly be analyzing spreadsheets, calculating costs, or crunching numbers (unless you’re us and you have a nerdy passion for financial statements, of course). But being in control of your finances is an essential part of being a successful business owner. You might have an amazing product, but it’s going to be near-impossible to be successful unless you’re in control of your budget.
Starting from scratch can feel overwhelming, but hopefully, these guidelines can help you get started down the right path.
However, if you want to be absolutely sure that it’s done right and you know that finances simply are not the best use of your time, we’re available! As accounting experts, we make sure that you have a budget so that your business can be on its way to success and financial growth.
And, if you sign up today, you’ll get 1 month of services FREE!