Guest blog written by Gabby Baglino
Ultimate Guide to Creating a Small Business Budget
When it comes to running a successful business, budget and planning are everything. Many small business owners feel they don’t require an actual budget.
But in reality, all entrepreneurs should have one, because not having a comprehensive financial budget makes it hard to grow your startup and measure its financial success. It can also set you up for financial problems in the future.
Importance of budgeting for a business.
When you build a new business there are many things to plan, from marketing to finding new clients, sourcing employees to work for the business, and enhancing its physical and digital presence. But there is one important element that you need to stay ahead of the competition right from the very beginning, and that’s a business budget.
A budget for a small business is an overview of its finances. It incorporates key information on both the current finances and the long-term financial goals of the company. If you have a precise budget plan for the business, it will help you make sound financial decisions. For example, keeping budget considerations in focus when R&D starts to veer from the plan.
As you grow to be a finance-savvy business owner, you will be able to precisely identify where to cut expenses to grow revenue. You will also be better able to source funds for your business if you can precisely outline your income and expenses to investors.
Building your small business budget.
The first step to building a business budget is committing to making one. The only way you will be able to fund your important business expenses is by planning for them. Remember that your budget should address taxes, utilities, insurance, inventory purchases, and of course payroll.
It is not only important to find the best-fit employees, but it’s also essential to pay them appropriately. Research shows that 43% of employees are ready to leave their job for a 10% salary increase. So before getting into budget planning, learn the areas that require fund sourcing to prevent avoidable issues in the future.
Calculate your revenue before planning your budget.
Determine all possible income sources for your business and calculate money influx for a year, broken down into months.
When you know where money is coming from and the seasonal variations, you will be able to make a roadmap for next year. You will also know when you have enough money for expenditures and when you need to cut your expenses.
Determine the fixed costs and variable expenses of the business.
Fixed costs are those expenses that stay constant every month. This includes rent, internet bills, cell phone bills, costs to fund the payroll, minimum credit card payments, and much more. Loan tracking software can help you stay on top of monthly payments.
You can review your expenses with the help of a bank statement. If you are new to the business, you can consider the projected cost, such as the rent amount signed for the business space.
Variable costs don’t have a fixed price tag, and they differ from one month to another depending on the performance of the business. This includes expenses such as electricity, travel costs, shipping costs, office supplies, marketing costs, commissions on sales, and more.
As the cost of the variables differs from one month to the next, you can spend more on them when you have made a profit. Similarly, when your profits are lower than expected, you can cut down on these variable costs and keep the expenses low.
With time, you will also be able to learn how these expenses fluctuate with the business performance and learn to prepare the financial budget accordingly.
Create a balance sheet with your profit and loss statement.
Now that you know your revenues and expenses, you will be able to create an accurate profit and loss statement for your business. Include the funds generated from the different sources. Also note the expenses made on the wages, office space, utilities, and raw materials.
Do not forget to include any bills and payments made. Create a balance sheet, and this will be of great help in ascertaining the worthiness of your business. On the left side of the sheet, record your assets and the cash you have in the bank account. The other side records the debts for the business, loans, and tax dues.
Now you will know how much your business needs to spend and earn each month. The most important point here is to stick to the budget. Refer to the budget before making any business purchase or decision. This will help in preventing overspending and missing payments on expenditures or your business loan.
Have an appropriate whistleblowing system in place.
Having a whistleblowing system helps protect your small business from any mishaps and helps your business stay compliant with any whistleblowing directives. By providing a secure channel for your employees to report issues as soon as they’re noticed, you can prevent those issues from becoming major problems down the road.
These systems will help your business to communicate with the employees and the stakeholders effectively. Also, compliance with the whistleblowing laws is not a mere legal necessity, but it is also a financial and moral responsibility.
Support your business with additional funds.
Though you have created a balance sheet, you will sometimes need to deviate from it. But you should allow your business to benefit from contingency money to fund unexpected expenses. This fund will also help your business to stay protected when you need it most.
Stick to the budget.
It is important to stick with your business budget whenever possible. Always refer to the budget before making big business decisions and purchases.
In addition to preventing you from overspending, it will help you to prioritize payments and keep track of where your money is going. A good budget will also improve the financial condition and stability of your small business.
3 thoughts on “The Ultimate Guide to Creating a Small Business Budget”
How can I prepare a budget within 1Lakh Rupees.
This blog post is written by Gabby Baglino. I will contact the writer and ask her about it.
The response from Gabby Baglino,
You can easily prepare a business budget under 1Lakh rupees. All you have to do is split the amount into four equal parts of Rs25,000 each.
Research the operating cost involved in your daily operations. It should be more or less than 25% of the amount you have invested. A rough estimate will be Rs25,000 to run the business operations.
This estimate includes fixed and recurring expenses like monthly rent, internet charges, and accounting services.
Cash flow: You need to get timely payments from the customers so that the cash flow is maintained. Therefore, try to receive at least 75% of the payments on time using easy payment channels. There will be a few customers who will delay payment, but they should not be more than 20% of all your customers.
Keep into account the season and festivals. Increase your production in such times to have more sales from a fixed budget of 1Lakh Rupees.
Last, but not least, use accounting software to make sure that you adhere to your budget of 1Lakh rupees.
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