How To Manage A Small Business Budget In 6 Steps
You need to learn how to be a master of all trades if you own a business. You have a multitude of responsibilities on your shoulders including managing your small business budget.
Building a budget is intimidating for a lot of business owners. However, it is a factor that allows your business to reach new heights and experience tangible growth. Truly, it helps you forecast current and future trends in expenses and revenue.
Studies indicate that one of the top reasons why businesses fail is because they fail to include cost and pricing issues. Consequently, this leads to them running out of cash sooner than they expected.
The truth is, these issues can be prevented quite easily if businesses make the effort to create a realistic budget.
Once you create a budget, you then can see where to allocate your funds. Based upon that, you can set up long- and short-term goals.
The process of creating your small business budget is not as complicated as it may seem at first. Following the six steps I describe in this article will assist you in completing the process once you have your goals in place.
Table of Contents
Managing Your Small Business Budget Like a Pro
1. Figure Out Your Income Sources
Making a small business budget begins with figuring out how much income your business generates.
Sales figures are a great place to start for this purpose. From there, you can add other income sources throughout the month.
How many income sources you have will depend largely on your business model. However, many sources of income you have, account for any of them, and the money brings you.
Then, tally all these sources to get a clear picture of your monthly revenue.
2. Do a Cost Analysis (Fixed and Variable)
Once you know how much you make, it’s time to consider what you spend it on. It is important to analyze both fixed and variable expenses. Expenses that remain the same month after month are called fixed costs. The internet and phone bills, website hosting, and rent are included in this category.
On the other hand, variable costs are those that don’t come with a fixed price tag. These expenses vary in cost every month based on your business activity and performance. Variable costs can include things like electricity bills, sales commissions, and travel costs.
When your profits are higher than usual, you can spend a little more on certain variables. This can help your business scale and grow faster.
At the end of each month, tally your variable costs and see how they vary with your business performance. This will help you get a more precise picture to plan your budget accordingly.
3. Forecast One-Time Spending
Many business expenses are regular, but some costs don’t happen frequently. But just because they don’t occur repeatedly does not mean you should forget about them when managing your small business budget.
If you know you have one-time spendings, such as a new laptop or an upcoming business course, add them to your budget. Set aside money to cover expenses and protect your business from sudden costs.
4. Create spending objectives
Your financial decisions should be guided by a budget. As a result, you should establish spending goals so that you can be certain that your money is going where it should.
Setting goals will assist you in creating a method to determine if you are making the best use of your money or even if it is being wasted.
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5. Consider spending for emergencies
Leave some room in your budget for emergency costs. Remember that although you might estimate that your business will have certain fixed and variable costs, these are just that: estimates.
Owing to this, it’s wise to factor in some slack and make sure you leave some wiggle room and have some extra money saved for rainy days.
An emergency business should be in place before you decide to take on more employees or expand your business in some other way.
6. Create Your Profit-Loss Statement
It’s time to put together your profit and loss statement.
Look at all your fixed and variable costs and add up all your monthly income and expenses. Then, subtract the expenses from the income. If you get a positive number, congratulations! You have made a profit!
If not, then it was a loss. Even so, keep in mind that small businesses are generally not profitable every single month, especially when they are just starting.
7. Outline Your Budget by Bringing Everything Together
Once you have gathered all the information from the previous steps, you are now ready to create your budget.
Once you have created your profit and loss statement, you will have an idea of the amount of money you now have left to make a budget around.
You now have to find ways to utilize your money in ways that will help you achieve your short- and long-term goals.
You should also look for trends in your business. For instance, your product or service may be such that it performs better in some months of the year than others. Take that into consideration when creating your budget and allocating resources.
The Bottom Line – Managing Your Small Business Budget Like a Pro
Summarizing what we have discussed above, it is clear that budgeting is not a difficult process. Moreover, it is a necessary step in building a strong financial foundation for your business’s present and future.
The goal is to make sure that enough finances are available to keep the business not just afloat but also generate a profit.
If you enjoyed this article on How To Manage A Small Business Budget In 6 Steps or have any questions for me, please feel free to leave them in the comment section below!
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