Creating a budget should be on top of your priority list as a business owner. Without a budget, you’re basically running your business blind. It is very easy to overspend and decrease your profit from one small mistake. This is why you need a budget in place.
Creating a budget isn’t as difficult as you might think. As long as you follow these six small steps, I am pretty sure you can start creating a budget right away.
1. Check out similar budget plans
Many people have created their budget plans, and there’s nothing wrong to copy what they’re doing if your business happens to be similar to theirs. Besides, if you’re running a small business, you could spend your time something else instead of creating a budget. Nevertheless, you still need to have a budget plan.
So before you spend your time on creating a budget, take a look at what other people are doing. By doing this, you can also learn about the industry standards. Later, you can improvise and adjust the budget plan based on what you need.
2. List all your sources of income
All businesses, even smaller ones, usually have multiple sources of income. They can be from different clients, products, or services. Find out how much revenue you make per week, month, and year. List all the sources down without omitting a single thing.
To list your sales figures, you can check them out by using your profit and loss statements. Don’t forget to factor in your other various income sources as well, such as hourly earnings, investment income, and business loans.
3. Write down all fixed costs and variable expenses
As the names suggest, fixed costs are expenses that do not change at all every month, while variable expenses are expenses that could change based on your business operations that day/week/month. Fixed costs could be your mortgage, payroll, utilities, loan fees, insurance, internet bill, and more. And variable expenses could be your marketing costs, employees training, events, travels, advertising, and more.
Identifying and calculating all fixed costs and variable expenses will give you a deeper understanding on how much your business is spending or might spend every week or month. This information helps you create a better and more accurate budget plan.
4. Emergency expenses or one-time expenses
Emergency expenses are expenses that could anytime when you least expect it. Without it, you might be struggling for paying certain expenses when you need to. And this could snowball into a bigger problem if not taken care of immediately.
Try to set aside some money for emergency expenses or one-time expenses. It could be 5 to 10% of your revenue, or even more if you’re being careful. Think of when your computers are broken, or office supplies are running short, or something more serious like fires or floods. These emergency funds are like a cushion for you to fall back on.
5. Consult a financial professional
Do you want to create a budget easily and quickly? Well, you can just hire a financial professional to do it for you. You can also use this chance to learn from them so you can do it yourself in the future. This is very useful for new business owners who don’t have much experience running a business yet. Why learn the hard way when you can learn the easy way?
6. Review your budget regularly
If you’re done creating a budget for your business, congratulations! But your job isn’t over yet. A budget plan is never meant to be permanent. As your business grows, your budget plan will need to be updated.
It’s important to review your budget regularly and see if you can update it. For every small change in your business needs to be addressed and get mentioned in the budget plan.
Creating a budget shouldn’t be difficult. It is part of your responsibilities as a business owner, and honestly, it’s fun to know more about the business that you’re running. Reviewing and changing your budget plan could be fun too, considering that it’s the time to learn more about how much your business has improved over the years.