Does Budgeting Confuse You? Try These 4 Easy Steps to Create a Budget for Your Small Business
Do you have a budget for your small business?
If you just answered “No” to that question, you’re not alone. Unfortunately, many small business owners don’t have a budget they refer to regularly, which is a recipe for disaster.
Even if you’re a solopreneur, a budget can help you make wise financial decisions for your business, make you look professional, and protect you from spending too much.
There are 4 basic steps you need to follow to create a budget for your small business:
Find out your total income.
Determine your fixed expenses.
List your variable expenses.
Add some buffer room.
Let’s go through each of these steps one by one.
1. Find out your total income.
The first thing you need to do is find out how much money your business is bringing in.
To do this, you need to look at each income source in your business and determine how much money it makes.
For a retail store, that looks like listing out your product categories and how much each category makes each month. For a consultant, that means listing out the services you offer and how much income they bring in.
It’s important to look at your gross income according to its sources as opposed to looking up the lump sum. After all, your income sources can fluctuate, which impacts your bottom line.
Knowing which sources fluctuate and how much can help you tweak your budget later on if need be.
2. Determine and list your fixed expenses.
Once you’ve determined your income, you need to find out how much your business spends. To start, focus on your fixed expenses.
Your fixed expenses are what you pay for each month. They don’t change based on how much you sell; they’re the expenses that don’t fluctuate.
Write each fixed expense down and how much it costs. These expenses can vary based on what type of business you run, but here are a few common ones to get you started:
Rent or mortgage
Utilities, including internet
Your salary and benefits (or your regular owner’s draw)
Employee salaries and benefits
Subscription costs (for software, magazines, online tools, etc.)
Equipment maintenance (for vehicles, computers, machines, etc.)
Interest expenses on any debt your business has
Cloud services and website server
3. Write down your variable expenses and one-time payments.
Next, focus on your variable expenses. These are different from fixed expenses in that they can fluctuate month to month.
Here are some examples of variable expenses:
Inventory (replenishing as needed)
Marketing, ads, and PR services
Expenses tied to conferences or events you host
Temporary workers such as freelancers or contractors
Credit card processing fees
Don’t forget to include payments you make only once a year. Some common ones are:
Taxes (federal, state, property, payroll)
Subscriptions you pay for once a year
Christmas bonuses or gifts to employees
Remember, these expenses depend on the nature of your business, so take time to think through every expense your business has. Look at your business bank account’s history and your credit card history to make sure you don’t forget anything.
4. Add some buffer and determine your budget.
The goal of your budget is to make sure your expenses don’t exceed your income. If at all possible, it’s wise to add some buffer room in case of emergencies.
You never know when a machine will break and you need to call a repair person, or when the toilet will overflow and you need to call a plumber.
These aren’t necessarily itemized expenses you can budget for, but a buffer can make sure you don’t go into the red when these emergencies happen.
Need some help putting your budget together? We have a team of accounting experts who are happy to help you.
We’ll walk you through the numbers in your budget and what they mean for your business as a whole. Click here to schedule a consultation!