No matter what kind of business you’re running, you need money in order to keep moving forward. This means that a formal and structured budgeting process is the foundation of every successful business. And just like with personal finances, coming up with a budget takes a lot of discipline and careful planning. Read on to find out the easiest way you can create a budget.
Figure out your timescale
When it comes to finances, a yearly financial budget is considered to be a default. However, just because most companies out there determine their budget this way, it doesn’t mean you have to do the same. Sometimes, operating on a quarterly or monthly budget can turn out to be a better idea. This is especially the case when running a small business and making long-term plans is more difficult. If you decide to go for a smaller timescale, you’ll be giving your business more chance to adapt to changing circumstances. Still, if you decide to go for a smaller scale, you have to make sure you don’t lose the sight of a bigger picture because of it. Once your business starts growing, determining a yearly budget might be a smart move but even then, you’ll want to break it down into smaller chunks.
Determine your expenses
Keeping track of your company’s expenses is an absolute must. This is where it’s important to understand that there are two types of expenses – fixed and variable. Firstly you’ll want to take a closer look at your fixed expenses. These are the expenses your business will have to cover no matter what’s happening within the company. Fixed expenses include things such as staff salary, lease and so on. Luckily, fixed expenses shouldn’t be too difficult to track. Variable expenses are those that depend on your company’s profits, which means they’re reactive and predictive. Postage costs are a great example of this kind of expenses. The more sales you have the more you’ll spend on shipping your products to your customers. Some other examples of variable costs include materials, transaction fees and variable labor.
Determine your income
Once you know how much money you’ll be spending, it’s time to determine your income. Most of your income is going to come from your core business, with sales being the most obvious example. On top of this, there are interests and returns on any investments your company will make in future. Of course, you can’t predict the future and it’s impossible to figure out exactly how much money your business is going to make. And this is where you have to rely on data from the previous periods. When doing this, don’t forget to take into account any fluctuations you expect to see in demand, especially if you’re in a seasonal industry. If you’re just starting out, you still don’t have any income but you need money in order to get your business off the ground. This is where you might want to turn to a company that offers fast business loans.
Account for projects
When creating your company’s budget, you’ll always want to leave some room for undertaking large projects. These are basically variable expenses, but they can take a large chunk out of your budget and tracking them individually might be a good idea. This means you’ll want to take a closer look at your previous projects like a marketing campaign or an IT equipment overhaul. Once you know how much projects like this cost your company, you’ll know how much money to set aside for similar projects in the future. If you see a rise in income, you’ll probably want to stash even more money for projects like this. This is the case because when profits are high, there’s no better way to invest your money than to finance such projects. Smart project planning is one of the key elements that allow your business to grow.
Review your budget
Creating your budget isn’t one of those things you’ll have to do once. It’s extremely important that you take a look at your budget at the end of each financial period and make adjustments if necessary. Ideally, you’ll be able to apply what you’ve learned during the previous financial period in order to make adjustments that’ll leave your business with more money. This means you might want to review your variable costs and identify ways to reduce them. You can also try to renegotiate some of your fixed expenses. Once you’ve been running your business for a couple of years, you’ll see patterns emerge and you’ll know exactly when to tighten up your budget and when you can spend some extra money.
Follow these 5 steps and you should be able to create your business budget. Don’t panic even in case something goes wrong. Use everything you’ve learned so far to create a better budget for the next financial period and you’ll have nothing to worry about.
About the Author
My name is Alex Williams, born and raised in beautiful Sydney. I am a journalism graduate, and a rookie blogger trying to find my luck. Blogs are the perfect opportunity for presenting yourself to wider audience, getting the chance to showcase my expertise and receiving recognition. I am a regular contributor at BizzmarkBlog.