How to Create a Budget for Your Business

How to Create a Budget for Your Business

Upon starting your business, you are inevitably going to wear many hats. One such that you are undoubtedly going to wear is that of the budget creator. Having a solid budget plan in place and then sticking to it is critical for the success of any new business, or any existing business as well for that matter. The key when creating a business budget is to make it as detailed as possible. The more you can track, the more expenses you input, the better grasp you'll have of where your company stands at any given time and where it may be headed. In this article, we look at some of the basics of creating a budget for your business.

Understanding Your Business Budget

So why is your business budget important? For most small business owners, their business budget will be useful when it comes to both the short and long term. That is to say, the budget outlines where you need to be at the current time given how that budget is laid out, and consequently, it also enables you to make smarter decisions moving forward. This is why it is crucial that you create that budget as soon as possible and then follow it as you strive to grow your company.

Among other things that the budget can help you to identify: a business budget allows you to see where potentially you could cut spending to save more money; also, if you plan to seek out investors and/or additional funding, then you will almost always need to be able to show a detailed budget.

How exactly do you go about creating your business budget? It isn't as difficult as some might assume. Below are a few steps to help you develop a working budget for your business.

Know All Income Sources

Of course, a budget is going to allow you to understand your expenses on a comprehensive level, but first and foremost you want to have a firm handle on where all the income is coming from. Knowing what you are bringing in each month is an absolute must for any sound budgeting plan.

From how much you are making in terms of actual sales to any investment income the company may have to come into any other revenue sources, you want to take all relevant income into account as you create a budget for your business. Keep in mind, if you have a storefront but also sell online you want to factor in sales from both ends of your business. This is the only way to get a complete picture of your finances—if you leave out any income sources your budget could be flawed.

What Are Your Fixed Costs?

Hand in hand with the income you have coming in are the bills you're paying out. You need to list out any fixed costs that the company has. A fixed cost is the same every single month. So for example, this could include your mortgage/rent, payroll, web hosting. If you pay it every month and it doesn't fluctuate in terms of how much you're paying then this would be listed under your fixed costs. Once you have a list of all such costs, you're going to add them together. For newer companies, you may have to make some projections where costs are concerned.

List Your Variable Expenses

Unlike fixed expenses, as the name suggests, a variable expense will change from time to time. It may not be an expense that necessarily crops up every single month either. So this could include things such as commissions, any travel costs that you incur, certain utilities may fluctuate as far as what you pay.

While they do change, you can start to get a feel for what these variable expenses add up to after a while. This way too you can better predict what you'll need to set aside for these types of expenses.

One Time Expenses

While the bulk of your expenses will fall under either the fixed or variable category, there are also those expenditures that you may only see once in a quarter or year. These though are still costs that you need to figure within your budget for the most accurate reporting possible. Perhaps, for example, you will be purchasing a new piece of machinery in the Fall. This needs to be accounted for in your budgetary expenses. Otherwise, if you fail to plan accordingly, you could be hit with a large bill that you were not expecting, and this could subsequently really hurt your overall finances.

Beyond just these planned expenses, you want to have reserve money on hand. These are funds put aside lest something major comes up (and usually something unexpected/). Without that reserve fund, you may have to look for the money in other places and this could get you into trouble.

Pulling Your Budget Together

Now that you have all relevant income and expenses accounted for, it is time to create that budget for your business. This then offers a comprehensive overview of where the company stands financially. You will need to add up all income as well as all of the expenses—from fixed to one time. This will give you a side-by-side comparison of what is coming in and what is going out and thereby allow you to analyze your cash flow. Your finalized business budget is what you will come to base several key decisions on moving forward. The important thing is to stay on top of that budget, adjust the numbers when applicable and try as best as you can to stick to the budget.

First Union Lending can help. We offer short-term loans, merchant cash advances, and lines of credit among other financing options. Even if your credit is less than ideal, we likely still have a financing solution for you. Call today and let's get started together!

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