Guest Post by Jessica Thiefels
A business budget is critical, allowing you to prepare for the future and be more successful as a business. Without a budget, you can’t function—like a car with no gas, you’re going nowhere. Why? A budget allows you to see the big picture, which helps you operate more effectively.
Thanks to a budget — even a simple one — you have a better idea of what’s coming in, what’s going out, where you can cut back, where you’re losing money and what you need to save or plan for. Knowing this could be the difference between building a successful business and failing before you get your chance.
“By committing these numbers to paper, your chances of succeeding with your business are helped by anticipating future needs, spending, profits and cash flow. It also may let you spot problems before they mushroom, so that you can switch gears,” explain business experts at Inc.com.
Writing Your First Business Budget
Your first business budget should be simple. There’s no need to dive into technical, financial data like, return on assets or EBITDA. Instead, your first business budget needs to focus on two things: money in and money out. If you’re not good at math, don’t worry. We’ll give you all the details you need to make this simple and effective.
Put Pen to Paper
Before you can create your business budget, you need to know where money is coming from, and where it’s going. Write it all out on paper or use a spreadsheet, which is more efficient and will make it easier to track over time. Get started by listing the following information.
Financial opportunities are easy to miss, and being on top of tracking and budgeting is a good way to ensure you catch every one.Tweet
All Income Sources:
How much money do you earn each month? This is the quick and easy way to find that out. Start with the most obvious source of income: sales. Then turn to other areas where you’re also making money for the business — ads on your site, paid resources/ebooks/courses, and other passive income.
When you know where money is coming from, you can assess which sources are more lucrative and do more of that. Financial opportunities are easy to miss, and being on top of tracking and budgeting is a good way to ensure you catch every one.
Your Fixed Costs:
Fixed costs are the same every month, hence the term “fixed.” In most cases, this will include monthly bills like utilities, rent, online subscriptions, insurance payments, hosting fees and e-commerce fees. This list should be quick and easy to make.
If you realize you need to cut back, this is a good list to turn to. If you’re in a pinch, ask yourself: Of all your expenses, what’s necessary and what’s not? Perhaps it’s time to go back to a home office or get rid of an online subscription you aren’t using as much as you thought you would.
Variable and One-Time Costs:
These costs may not happen every month, but at some point or another they’re taking money out of your wallet, which means they need to be accounted for. Variable costs might be payments to freelance or contract workers who are doing small jobs here and there. One-time costs include things like the purchase of an expensive piece of equipment or a ticket to a business conference.
As an evolving list, check-in with this one at least once a quarter to weigh the costs and plan as necessary.
“Do” the Math
If you’ve been tracking all of this in a spreadsheet, including the dollar amount for each item, it will be easy enough to total the income and expenses, subtract the two sums, and get your current monthly income. If you’re not handy with a spreadsheet or just want to plug in the numbers and get a total, check out the following tools.
Budgeting Calculator: This simple calculator asks for total income and total spending—that’s it. What you get in return is the total that you overspend or save each month, along with what percentage the savings or deficit is of your total income. If you’re in the red, this is a simple way to track progress toward being cash flow positive. The simplicity makes this a great tool for new Etsy seller or similar online business owners with minimal debt and a small amount of sales.
WSJ Startup Calculator: For a business that has a lot of startup expenses — legal, website design, logo design, office supplies — this is the calculator you need. With a spot for each potential expense, you can break down what you’re spending to get an idea of where the bulk of your money is going and why.
Cash Flow Calculator: While this isn’t a budgeting calculator, it is a great secondary tool to visualize where your money is coming from and going out. The cash flow chart shows sales, expenses, net profits, total cash spent and more, making it easy to see where your financials fall each month, quarter or year.
Analyze the Results
Now that you know where your business stands financially — it’s time to analyze what you see, predict what you’ll need in the future, and see if you need to cut back. For example, if you see that you’re in the red, and have a goal of being cash flow positive in 12 months, this is the time to plan. Where can you cut back on expenses, or better yet, where are there opportunities to make more money?
The value of a creating a business budget is that it allows you to predict what costs are to come and plan ahead. Think about the next 12 months and take note of any other big, one-time purchases on the horizon. Work that into your annual budget, along with any other plans that will require a significant amount of money, like a big round of hiring or office space change. This allows you to forecast the storm, rather than waiting it out and surveying the damage — something not enough businesses are able to do.
Jessica Thiefels has been writing for more than ten years and has five years of experience in the marketing world. She is currently a lifestyle blogger and has been featured on Ms. Career Girl, Manta, and LifeHack.org. Follow her on Twitter @Jlsander07.