Your One-Stop Guide To Small Business Budgeting
Launching a business may seem like a piece of cake, but without proper small business budgeting, you’ll have a hard time surviving.
Creating a business budget ensures that you allot an appropriate amount of funds to a particular liability or asset so that you don’t go overboard later on. In this way, small business budgeting keeps you on track and prevents you from falling into debt, taking care of your profits.
Wondering how to create a business budget for your startup? You’ll find out below in our step-by-step guide to budgeting for business owners.
Why You Need a Budget
A business budget sketches your company’s financial and operational objectives. It’s an action plan that helps you allocate resources, appraise performances, and create plans. The rudimentary process of creating a company budget includes listing your fixed and variable costs on a monthly basis and then deciding on the distribution of funds to reflect your business objectives.
But why is it so critical for startups? Creating a small business budget gives you direction. With a budget, you can allocate funds and resources to different areas of your business. However, that’s just the first part of the small business budgeting process. The more important part is the regular monitoring to be performed to check your performance against targets. By regularly comparing your actual financial statements against the budget, you will be able to control the finances of your business.
In a nutshell, a small business budget will help you
- Predict the funds you can generate
- Plan where to spend those funds
- Realize the variance between your plan and reality
What To Budget For
While every business venture has its own set of expenses, an ideal budget for business plan example would include these 6 key components:
Expected profits
Expected profits are the cash you anticipate to earn from selling your products or services. It’s usually the first line on your business budget and can be based on previous years’ figures, or on the industry averages if you’re a startup.
Fixed costs
Fixed costs are all your regular costs that do not vary in line with how much you earn. Some examples include rent, coverage, utilities, bank fees, bookkeeping and legal services, and equipment lease.
Variable costs
Variable costs shift and change as per your production or sales volume. Some of these include resources, inventory, manufacturing costs, packaging, and delivery. Other examples would be sales commission, credit card dues, and travel.
One-off costs
These are startup costs that do not fall under your usual business work, such as relocating offices, equipment, furniture, and software, along with other expenses related to business takeoff and research.
Cash flow
This includes all funds transferring into and out of your business. Positive cash flow shows that there’s more money pouring in to your small business than leaving it, over a definite time period.
Net Profit
This is what you take home after deducting all your expenses from your revenue. Increasing net profit means the business is developing.
How To Create A Business Budget
Here’s a step-by-step guide on how to prepare a budget for an organization:
- Total Your Sources of Income. Figure out how much cash you earn on a monthly basis. Begin with your sales figures and then add other sources of income such as loans, investments, and so on.
- Identify Fixed Costs. Evaluate your previous bank statements to identify your fixed bills and the total amount you have to pay every month.
- Determine Variable Costs. Identify all business costs that don’t have a fixed price tag. Depending on the state of your business, you can scale up or down your variable costs using your monthly revenue.
- Forecast One-Time Costs. Factor in one-time costs that could be unexpected (such as procuring a laptop to substitute the one that crashed) or those that could be budgeted in advance (such as business travel). This will save your company from financial liability.
- Consolidate. Pull all of the above mentioned elements together and consolidate it in a budget format.
Business Budgeting Tips
Here are some helpful tips and strategies to help you stick to your budget and plans:
- Create a more realistic budget by properly considering the amount of money that’s actually being spent every month.
- Before creating your budget, keep a record of all of your expenses so that you know how much money you spend on petrol, lunches, and other daily expenses.
- Plan for emergencies such as natural disasters and equipment failure, and include that expense in your budget.
- Avoid using your savings, retirement, or 401K as liquid assets as they are for your long-term financial freedom.
Budgeting With L3 Funding
If you want to be an effective business budget planner, you should know where to turn when you are in need of financial assistance. L3 Funding offers business cash advance services to ensure that you don’t fall short when you need funds the most. To learn more, get a free one-on-one consultation with our L3 Funding specialists by calling (877) 9-FUNDIN or applying online. We’d be happy to help you save money for your future while taking care of your current needs.