There’s no question about it – preparing a business budget is essential for any business, big or small. Without one, it’s nearly impossible to make informed decisions about where your company is headed and how to get there.
Everyone knows that a business budget is required to be successful, but according to a Clutch financial study, a staggering 70% of SMBs don’t have a budget, and that’s almost half. Responsibility for a small business cannot be tasked to professionals alone. No specialist’s remedy can remove completely the conundrum and plurality of decisions. The owner should know what to make his staff acquire from beginning to end with the organization. This is why human resource management or social regulation is required.
But creating a budget can be daunting, especially for businesses that are just starting out. With so many factors to consider, it can be difficult to know where to begin. That’s why we’ve created this comprehensive guide to preparing a business budget. In it, we’ll walk you through every step of the process, from gathering your data to set realistic goals.
We’ll also provide plenty of helpful tips and examples to make the process as easy as possible. By following these guidelines, you’ll be able to create a budget that helps your business thrive – no matter what stage it’s in.
You Need A Small Business Budget
Going through small business budgeting is a labor of love and a catalyst for success, according to analysts, and they’re right. If you don’t have a business budget, you won’t know where to start. Without a budget, there’s a high chance you aren’t making the right decisions for your business. A lack of a budget could mean the difference between making and losing money, and it could also lead to bad hiring decisions because, in the end, your goals as a business owner will only be as powerful as your ability to act on them.
A financially diverse business operates where people are able to understand the dynamics of money coming in and going out. This amounts to each person “doing their job” to see the whole picture and use every penny as efficiently as possible.
9 Steps To Create A Small Business Budget
Since a budget is so important to your business, you can be sure to create one so that you manage your money efficiently and cash flow becomes smooth.
1. Make A Budget Plan And Define Your Goals
In order to create a small business budget, you need to know what information you need to gather first. There are two key reasons you need to establish your business budget goals. The first is to clearly communicate with your employees, stakeholders, and clients. When you have a clearly defined goal, it will be easier to get your employees on board and make the right financial decisions. The second reason is to be able to identify where you are today and where you want to go so this plan will set you up for future success.
2. Separate Your Business And Personal Finances
It is a commonly remarked fact that this is one of the cardinal rules to achieving business success, but It can be tempting for small entrepreneurs to mix business and personal finances, but the risk of disasters is relatively high. It is necessary to separate business and personal finances.
This is important in three ways:
Stagnation: Without an accurate view of your financial position, you’re not likely to progress.
Taxation: In business, your side of the story is the business’ story. You can only effectively manage business expenses after you have a clear picture of how your business is performing.
Litigation: The line between the business and you is often blurred with other kinds of legal business activity, including copyrights, trademarks, and patents. You need to protect your personal assets to protect the business
3. Save Up For Emergency Period
Murphy’s Law states: “Anything that can go wrong will go wrong.” Hence, you should have some spare change on hand to safeguard your company from the unexpected. According to a report by the Bureau of Labor Statistics, small businesses are more likely to fail during an emergency.
But if this is the first time you’ve started a business, you know that unexpected expenses are unavoidable. Having a reserve fund for emergencies could help secure your business when something unexpected happens. Therefore, for now, save a bit of money to cover your business expenses for three to six months, which equals around three to six months of your normal invoice amounts (before making any changes or purchasing new equipment).
In small business budgeting, it is important to know the answer to two major questions: “Where does my money come from?,” and “How much and how often does it come in?” A good budget breakdown and financial management plan must answer these questions.
4. Determine your fixed costs
Mostly, fixed costs are recurring costs that are persistent, can appear regularly or yearly, and are vital for your business operations. These operating costs either consist of everything from rent, loans, utilities, payroll, and some taxes, as well as insurance. This type of cost is permanently fixed and can’t be changed easily.
5. Determine Your Variable Costs
Your costs experience fluctuations as you push out into profitability, and these fluctuations are referred to as variable costs because they vary with your decisions.
This Business-level cost is associated with the activities that are done periodically but don’t happen every time. These types of costs comprise your monthly insurance, professional services, marketing activities, stock advertising, professional development, supplies, salary, and many more expenses that fluctuate based on how you chose to use them.
6. Make A Profit And Loss Statement
You may have already heard the profit and loss statement, and it’s probably giving you a headache just thinking about it. The problem is that it is version one; as time goes on, you may need to write it differently so that you aren’t giving yourself a headache and your statement has the information you need. It could be a simple statement like Downward trending metrics and expectations plus newly established direction for the forecast period gives us confidence in a near-term profit outlook of positive $0.
In order to make a profit, you need to have a positive number at the end of the day, and, if you do, congratulations! If you get a negative figure at the end of the day, don’t worry about it, because you know where your money is going, and you can make the necessary adjustments to turn a profit.
7. Practice Good Investment Management
Preparing a business budget is to practice good investment management. It is important to know how much money you have to spend on your business, how much money you need to spend for the short term, and how much money you need to spend for the long term.
You must invest in your business and in some cases, you might need to invest in other people. By investing in the right people, you can make the right decisions for your business. You can also make sure your business will be successful by investing in your employees.
8. Review Your Budget
The final step in preparing your business budget is to review your budget and make sure it is consistent with your goals. You also need to make sure you have an accurate view of your financial position and are prepared for the future.
You should also make sure that you have a budget that is easy to understand and follow so as to avoid complications in the long run.
9. Implement Your Business Budget
Now that you have a plan to get started, you need to implement your budget. To do so, you need to have a clear idea of which expenses will be covered by your budget model. Having a clear idea of which expenses will be covered is key to creating a budget that matches your goals.
The most important part of your budget is your cash flow. It is important to know that cash flow is not just money in and money out. You need to identify how much cash you will have. This also differs from the money you have taken in. You need to know how much you will pay out and how much you will receive in the future.
You have decided that you need to create a business budget, but how do you actually implement it? Now is the time to determine whether you need to implement a single or a dual budget. Single budgets are usually for one person or sole proprietorship business and are designed to cover both personal and business expenses. Dual budgets, on the other hand, are for a business owner who is both the owner and the employee of the business.
Choosing a budget system is a big decision, but it is important to understand that you can’t just pick the budget system that you think is right for you. There are several different types of budget systems, and finding the one you want may take some time. With a small business budget, you have insight into the business performance and the best financial decisions for your business. Good luck with creating the best budget for your business, you can always hit us up for further assistance