A business budget is a plan for managing your money. Budgeting can help you see past the next week, or even the next month, into the future of your business. You don’t need a crystal ball, just a little bit of intuition and educated guesswork based on facts and numbers. The longer you’ve been in business, the easier budgeting will be. When you create your initial budget it should cover a year and include monthly income and expense projections.
Before you start on your budget write down any financial goals for your business. Now that you know your goals, gather your financial information and get to budgeting!
1. Your Revenue Streams
First things first. How much money is your business bringing in every month? Look at all your income sources. When you are creating your tally remember, this is the money you are bringing in, your revenue, your gross income---not your profits or your net income. If you can tally up a year's worth of information you will be able to examine seasonal patterns and income changes.
2. Fixed Costs
Now that you know how much money you’re bringing in on a month-to-month basis, look at where you’re spending your money. Start with fixed costs. Fixed costs are expenses that stay the same every month, week, or year. They are consistent and do not change. This includes rent, taxes, insurance, loan payments, and certain utilities such as the internet.
3. Variable Expenses
These are costs that fluctuate from month to month. These expenses include utilities such as electricity. Variable expenses can also include things such as office supplies, advertising and marketing costs, costs of goods sold, and professional development top name a few. Shipping costs, travel, and utilities such as electricity are usually in this category.
4. Unexpected Costs
Set up a contingency fund to plan for one-time costs. You know, the big-ticket items that your business cannot function without. They are larger, one-time purchases that fall outside of your normal day-to-day business budget. To help offset the unexpected, budget for your business by including a contingency plan within your budget. Set aside some of your surpluses to cover big, one-time, emergency costs. If you’ve planned for it, can you call it an emergency?
5. Profit & Loss Statement
Now that you’ve hashed out all of your profits and expenses, put it all together to create your profit and loss statement (or P&L). You can create a P&L for a month, quarter, year, or any length of time. If you use Quickbooks or another accounting software platform, the software will do the work for you. Essentially, a P&L is just addition and subtraction. It is your business’s cash flow, what’s coming in and what’s going out. You should monitor your cash flow on a monthly, if not weekly basis. Add up all of your income, then add up all of your expenses, then subtract your expenses from the income. If you get a positive number, congratulations, that’s called profit!
If you end up with a negative number, it’s a loss. But don’t fret if you see a negative number, especially when you’re just starting your entrepreneurial journey. It takes time to grow a business and turn a profit. Sometimes turning a profit can be as simple as cutting expenses, revisiting your profit margins to raise prices, or focusing on marketing and advertising to reach more customers.
I find I work better when I have reference materials. Here are links to sample budgets and budget templates that you may find helpful: https://www.thebalancesmb.com/sample-business-budget-template-393033
https://www.justbusiness.com/finance/small-business-budget-templates
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