You know how the saying goes, right? “You need to spend money to make money.” We have all heard this saying countless times and although it isn’t true for every business, if you want to run a highly successful one, you might want to consider it to be a little bit true.
Now, whether your business is booming and you want to see what income is coming from where or business is a little slower than usual, and you want to see what expenses you can cut out to make a little more profit, either way, you should be setting up and maintaining a budget for your business.
Many people cringe at the simple thought of even starting a budget for their business but you don’t have to be afraid of setting one up. There are six simple steps to doing this and it will save you a lot of hassle in the long run. Not to mention, you will get to see if your business is in the red or is fine and just needs a boost on social media to bring in more customers. You can also use a budget to see how far you have come with your business. Don’t forget about creating a budget to ensure you don’t overspend.
Keep reading to learn how to set-up and maintain a business budget the right way.
Why You Need a Budget For Your Business
Although you need to have a budget for your business to be able to see how much money you are making, how much you spend on business expenses and yourself, and how much you are able to save, there are other reasons you need a budget.
Banks May Want to See Your Budget
If you are trying to get a loan for your business or might try to get one in the future, the bank or other financial institution you visit may want to see your business budget to make sure you will have the money to pay the loan back.
Your Employees May Benefit From Seeing Your Budget
If you have any employees that work for your business, they may benefit from seeing your business budget. If they see that you have enough money in your budget to give raises and promotions, this may motivate them to work harder for the business, making it thrive. Once the business is thriving, you will benefit as well from their hard work and from your hard work too.
How to Create a Budget For Your Business
Step One: Examine Your Income
First, you need to add up all of the income you have coming in every month. Examining your income can help you understand how much you have coming in and from which sources. Adding them all up for the month will allow you to realize what you make every month. This can also help you understand if you are making more money than you are spending, or spending more money than you earn.
Step Two: Deduct Your Fixed Costs
Next, you need to figure out what you have coming out for fixed costs. You can do this by calculating what you have coming out for business expenses. The fixed costs are your costs for your bills that cost the same every month. This could be your internet, your phone, electricity, and really anything that is important and necessary for running your business. Adding all of this up will allow you to understand what you have coming out every month for these costs.
Step Three: Figure Out Your Variable Expenses
Variable expenses include things like your salary, replacement equipment, office supplies, and other things that don’t cost the same thing every month. For example, if you buy printed envelopes, they are office supplies that may not cost the same thing every month. They will cost a different price depending on the envelope sizes you need throughout the month. Also, you might not need them one month and the next month you might need a lot of them. It all depends on what you are using them for from month-to-month.
Step Four: Set Aside Extra Money For an Emergency
It doesn’t matter whether you have run a business before, we all know that unexpected expenses come up. For example, maybe your business is running slowly for one month and your car breaks down. Of course, you didn’t plan for this so now you don’t have the money to get your car fixed unless business picks up. However, if you did plan for something unexpected to come up, you could have the emergency funds to go toward repairing your car.
Step Five: Create Your Profit and Loss Statement
Once steps one through four are done, take all of the information you have gathered and use it to create a profit and loss statement. Just thinking about something like this can be scary. Remember though, you have done all of the hard work already. Now all you have to do is add and subtract. Add up all of your income for the month and add up all of your expenses for the month. Now, subtract the expenses from the income and hope a positive number comes out of it.
If you get a positive number, this is great! It means you made a profit from your business. However, if you are in the red, it may be time to see how you can make it positive to turn a profit.
Step Six: Create an Outline for the Future of Your Business
Now it is time to actually create your budget for the future of your business. Your first step in doing this is to check over your profit and loss statement. You need to check it for the ups and downs your business had in the past. You also need to see what business investments are worth investing in again and things to avoid for the future of your business.
Things You Need to Create a Budget Efficiently
There are certain things that you should invest in to create your budget efficiently. They include:
- Buy accounting software. This will help you track your expenses and income and will also help you create your profit and loss statement easier.
- Hire an accountant. Hire an accountant you can trust to keep track of your income and expenses, keep you on course when you get off track, and to make sure you pay all of your bills on time, including the taxes that need to be paid.
- Use a small business template you can find online.
No one, especially business owners, like anything about making a budget but it is a necessary step for a good future for you and your business.