“If you’re not managing the money, the money is managing you.”
You absolutely need a budget for your business. It does not matter if you have minimal or erratic revenue. It does not matter that you don’t have a personal budget. A business budget is your professional planning tool. Without a budget your business is flying by the seat of its pants and you will have no way to figure out what you should be doing from one day to the next.
Seriously, sit down and make a budget now. You shouldn’t even be thinking about going into business without a budget already made up!
A budget lets you make better decisions for your business. It provides a road map that tells you where you are and what it will take to get to where you want to be.
The business budget will help you determine your future needs, spending and cash flow. Simply, it is going to let you know how much money you have to spend. The budget is the numerical expression of your business plan. It can be used to estimate start-up costs, operational cost and if done properly, it can give you a realistic figure for expected profits.
Keep in mind that the budget is not just about expenses. You are budgeting revenue as well. One of the most useful uses I found for a budget was comparing actual revenue for a given source to what I had expected or budgeted as revenue from that source. Say I expected to get $1000 from source A. If I got $2000, I knew I was doing something right. But if I only got $250, I knew something was wrong and that I had an area that needed attention.
The budget is a living tool for your business. It will help you make the right decisions.
Should you ever need to borrow or finance your business, the bank or financier will require a budget.
It is also a good idea to have a budget that you can share will your employees. Sharing a budget gives them a sense of ownership of the business process, a sense that you have shared goals and that you are all in it together.
A budget consists of several parts. You should have a budget for start-up costs as well as for fixed and variable costs and revenues. You can derive a profit budget by subtracting your total cost (fixed plus variable) budget from your revenue budget.
Budgets should always begin with variable expenses.
- Variable costs – are those expenses that vary, and are have a direct correlation to the amount of business you do. They are proportionate to sales. For example, if you are selling cheeseburgers, the cost of the meat and cheese vary with the number of burgers that you sell. The more you sell, the higher the cost.
- Fixed costs – do not vary with the number of sales. They are costs that you are going to incur whether you sell one unit or one million units. Examples of fixed costs are rent, utilities, licenses and salary.
Some professionals suggest that when you put together your cost budgets that you add 50% to 100% of your initial figures. This padding is to cover the emergencies and unexpected events that are the stuff of life.
You need to do a revenue budget too. Estimate the amount of money that you think is going to come in the door and break that revenue number down by source.
Subtract the costs from the revenue and there is your profit. Now cut the revenue figures in half and see if you can still survive on what you are making. Remember, the unexpected always happen and you need a budget in order to know what you will do when what you don’t expect to happen does happen.
If you want help budgeting and breaking free of debt, checkout this Auto-budgeting Technique.
Spreadsheet budgeting gets messy and overwhelming, so it’s best to use budgeting software. For business budgeting software, you have to go with Quicken. It manages both business and personal expenses along with maximizing tax deductions along with mobile integration.
It’s a lot more work, but you can access a host of Business Budget worksheets from MS Excel. If you don’t have Excel, it’s really easy and affordable to get right now. Download from Microsoft 365 for less than $10/month!