When you run a business, it is vital that you have a budget in place to help you attain the financial goals that you’ve been working toward. When you set a budget, it will give you the clear picture of your finances that is needed to be successful. A budget makes operating your business much easier and more manageable. However, if you haven’t ever set a budget for a small business before, you might not know where to start. Propel Your Accounting is here to walk you through the steps it takes to create a budget for your small business.
Tips to Set Up a Budget for Your Small Business
It can be difficult to set a solid budget for your business until you have been at it for a while. You have to collect enough data to effectively set a budget that makes sense. Here are the steps to setting a budget that will work for your business.
– Add Up Revenue: The first step in the process is to determine the money that you are bringing in each month. You will want to take a close look at all the sources of revenue you have a business. You will want to do this for multiple months and hopefully have about 12 months to work with.
– Subtract Fixed Costs: Your business will have costs that won’t change each month. These costs will need to be subtracted from the revenue you just calculated. Fixed costs are going to be things like rent/mortgage, loans, property taxes, salaries and more.
– Subtracts Variable Expenses: You will also have expenses that will vary from month to month. You will be able to count on them, but the amount might fluctuate. These expenses will include things like hourly wages, materials, utilities and more.
– Have a Contingency Fund: There are sure expenses that are going to pop up here and there. It is important to have a contingency fund in place to help you cover these costs. There will inevitably be things like equipment that breaks down, improvements to your building and other costs that seem to come out of nowhere. You need to be ready.
– Determine Your Profit: Once you have subtracted all of your expenses from your revenue you will have your net income. This is sometimes in the red which means that you have suffered a loss, but there will be times you are in the black too. It is normal for small businesses to experience profitable years as well as ones where you lose.
– Finalize Your Budget: This is the time when you can clearly set a budget. You will be able to see where your business is overspending and where you could reinvest some money. Make sure your goals are realistic and achievable.
Bookkeeping, Accounting, Business Consulting & HR / Admin Services in the United States of America
If you are struggling to set a budget for your small business and could use some consulting, you can turn to Propel Your Accounting to help you get it done. Call us today!
