Budgeting is the basis of running a business. Without proper budgeting, you wouldn’t the revenue and expenses of your business. This will lead to a disaster sooner or later.
As a business owner, it is your responsibility to know a lot of things about your business. From the smallest to the biggest part – absolutely everything. And to do that, you need to set up a budget.
It can be intimidating at first, but this is something that you must do and learn. So how exactly do you set up a budget?
Examine your revenue
Before doing anything else, it is important to see how well your business is going. It’s time to look backward at your business and find out all of your revenue sources. Add them all together and see how much revenue you’re getting each month.
Remember, it is revenue and not profit. Revenue is all the money that your business earns before being deducted by expenses. What remains of it after being deducted by expenses is called profit.
After finding out all of your revenue sources and calculate your monthly revenue, do the same thing for multiple months. Count back to the past 12 months if possible. If you’ve collected and stored all the important data, this step shouldn’t be a problem.
Now you can see how your monthly income changes from time to time depending on the season. You can take a better look at how your business is doing now and give yourself a good idea about what to do next.
Calculate fixed costs
Fixed costs within your business may include rent, supplies, taxes, insurance, payroll, depreciation of assets, and debts repayment. Calculating fixed costs is important because you will be paying them for a long period. So it is necessary to take them into account.
These fixed costs might occur daily, weekly, or monthly, or even yearly. Many businesses, especially smaller ones, could be unique when it comes to fixed costs. Therefore, it is important to collect and store as much data as possible. Now after you’ve collected all the fixed costs of your business, it is time to subtract those from your revenue.
Calculating variable expenses may be more difficult compared to fixed costs. Variable expenses are expenses that change depending on how much you use the service and the state of operation of your business.
Your variable expenses may include your salary, utilities, marketing costs, buying new equipment, office supplies, and employees development. Now you may already know why these are variable expenses. Many of these expenses are needed for your business to keep operating.
Don’t be surprised when you find out that some variable expenses are overpriced or not needed at all but would be nice to have to improve the quality of your employees and even increase profit. Your variable expenses can be adjusted depending on what you need. During profitable months, for example, you can increase your spending and vice versa.
Set aside some funds for emergency
You can be as careful as you can, but sometimes, an emergency could surprise you still. A state of emergency doesn’t have to be negative, for example, you want to celebrate a special occasion with your family or employees.
Any extra costs that you need to pay without planning can be considered an emergency. And can bite you hard if you didn’t have any fun available. This is why budgeting your business is important because it’s preparing your business for unexpected costs.
The hardest part of setting aside some funds for an emergency is resisting the temptation to spend the money. Remember that although you’re getting a surplus of income, you need to put some aside into an emergency fund. Your emergency fund could save your business in times of need.
Collecting every piece of information mentioned above will help you budget for your business. If you think you can do extra to gain more information, feel free to do that. It is also a great idea to start collecting and storing all the important information related to your business.
Hopefully, you will learn how to be more efficient in budgeting. In fact, it is one of your biggest responsibilities as a business owner.