4 Tips for Creating a Solid Budget for Your Business
Just like your personal expenses, you should have a budget for your business. It is perhaps even more critical that you know where every dollar is going and what kind of revenue you can expect on a regular basis. Budgeting will help the long-term viability of your company. While the idea of budgeting may seem daunting, it does not have to be complicated. You can use these suggestions to create an effective budget for your company.
1. Create your budget based on your long-term goals.
Sometimes it is hard to think about long-term goals when the day-to-day hustle and bustle of your company is keeping you busy. However, if you have a long-term goal in mind for your company, it is often easier to stay motivated and on track. It also helps you have a concrete number or plan in mind—and budgeting is part of how you get there.
A long-term goal may be to hit a specific profit number or to expand to another location. It may be to hire staff so that you can manage from afar. Think about the funding or security that you need to hit that goal and build your budget using that goal as a measuring stick. Budgeting for growth will help you set aside funds to make real steps toward long-term goals.
2. Know your real income and expenses.
This is tough to do if you are just starting out. However, if you already have a track record, you may have an idea of what you will earn in a particular month. Be realistic about your income and your expenses.
Separate your goals from your current situation. Your budget should be based on your real income and expenses. You use that as a measure of whether you are making progress toward your goals.
3. Begin with your income and revenue sources.
You should start your overall budget with your profits. After all, this information will tell you how much you have for expenses and how much potential revenue is available. Examine all of your income sources, from actual products sold to add-on services. Sometimes businesses overlook important revenue streams because they are small. In doing that, they can miss out on potential expansion and growth opportunities. Separate each income source so you can see where your money is coming from.
You should also consider the mark up on each of your revenue generators. Are there one or two that do not have a reasonable return on the time or investment put into the product or service? If so, now might be a good time to consider phasing out that portion of your business.
4. Start cost estimations by including your fixed costs first.
Once you have your income information, transition to estimating your expenses. This step is often more complicated and cumbersome than predicting your income. There are several types of costs that affect your business. Your fixed costs are by far the easiest to estimate. They are often spot-on or within a few dollars of your estimate. They are also some of your most substantial costs as well. Start tallying up these fixed costs first before you tackle more challenging expenses.
Fixed costs often include things like rent, recurring software subscription payments, and insurance. Then, move to variable costs, and be sure to estimate upward if you are unsure of the actual amount. It is always best to err on the side of over-estimating expenses instead of having to face unexpected costs.
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