All businesses need to budget. Even the largest businesses in the world need to have a budget, so it’s definitely something your small business has to have in hand. We know creating a budget can be tough – sometimes daunting – but the benefits far outweigh the drawbacks.
Here’s some smart budgeting steps to consider:
1. Deal with the ‘why?’
Firstly, remind yourself of why you need to do this. That’ll get you past those awkward ‘do I really have to do this?’ feelings that might be lingering. Getting a budget plan in place is good for:
- Financing: It help with setting prices (you know how much you’ve paid on stock and can set your profit margin)
- Reassurance: It will help you to forecast how much you’re going to have in the future
- Control: You’ll know what’s going on across all aspects of your business
- Goals: It can help you to map out what you want to do in the future.
Once you’ve decided to create a budget, you will need to find a tool to help you do this. Are you a spreadsheet kind of person or do you want a simple system which does everything for you? Investing in the right system can help you complete your tax forms by integrating everything in one place.
2. Where is your income coming from?
You need to establish where your income sources are coming from. So, for example, if you are making products to sell you could make an income from:
- The actual products
- Gift wrapping
- Personalised commissions.
Or if you’re a freelance writer you can get income from:
- Freelance commissions
- Offering training and writing courses
- Starting a copywriting business.
Wherever your income is coming from, make a list of all revenue streams. You’ll want to know how much you get in and where it comes from so that you can spot trends, identify growth areas and know where you need to spend further going forward.
3. What are your costs?
Now that we have established where your sources of income are, it’s time to focus on your outgoings.
Look at all of your fixed costs – the things which will be the same every single month. This way you can establish a baseline figure that you need to make to pay the bills. These outgoings include everything from rent to website fees (if you pay month to month), phone plans and payroll.
Then you can address the variable costs, the ones which can change each month. So for these we’re talking variable energy bills, travel and shipping. You might well be able to identify patterns, trends and even sayings here.
4. Bring it all together
Now you need to bring it all together. You’ll be able to see your income, outgoings and expenses all in one place.
Aim to produce a one-page summary of the key facts and figures so you don’t drown in detail here. You need a short snappy summary that gives you an understanding of your best performing months, biggest costs and best money making avenues. Then you can set targets to go about extending the positives and reducing the negatives so that next year’s summary looks roiser.
Use accounting software to automate some of the analysis of your figures and you’ll find this stage simple to do.