How do you determine a budget for small business when there are so many variables? Entrepreneurs can easily get bogged down in the day-to-day details of their business but maintaining a budget is a must. The practice requires some discipline, but the benefits are proven. Just as a garden needs tending, your financials do too. Follow these simple steps to building a budget for your business. Most importantly, stick to it!
Get a big-picture view of your business. If you have been at it long enough, try reaching back about 1 year for this valuable data. Although it might be time-consuming, tracking your business financials for a whole year, can help you identify traffic patterns. Are there certain times of year when you are slow or busy? The data will help highlight those instances. Then you can make informed financial decisions throughout the year based on those fluctuations.
Here’s how to compile your business data to determine a budget:
- Add Up Your Revenue
First, list all your revenue sources to determine how much you make in a year. Add them all up to find your total revenue.
- Fixed Costs
Fixed costs can be defined as bills that stay the same every month. Think rent, mortgage, car payment, and insurance premiums to name a few. Add up those fixed costs.
- Variable Expenses
Variable costs are those that change. Production supplies, shipping, advertising, and credit card fees are just a few. Because they change, you may need to estimate or provide an average cost. Add up those variable expenses.
- Net Income
Subtract your fixed and variable costs from your total revenue to find your net income. Did you make a profit? Small businesses take time to build. Not all are profitable right out of the gate, but this data should provide some insight on next steps.
- Determine a Budget
Take an honest look at the data you’ve compiled. What is costing the most? Can you cut some of your spending? Make projections based on the data to create a spending plan or budget. Set aside time each week to compare your actual numbers with those projections to determine if you are on track or if your budget needs tweaking.
- Set short-term financial goals – A short-term goal could be to hire a new employee or pay off a debt by the end of the year. If you’re working on digging out of debt, you can calculate how much you will chip away at it each month until its gone and eliminated from your life! Yes, it is empowering to take control with short-term goals.
- Set long-term financial goals – An example of a long-term financial goal could be to reinvest 20% of your profit back into your company by a certain year. You may want to open another location at some point. Map out the milestones you would need to reach to make that happen. Long-term goals help keep you focused while allowing you to think big.
- Put money aside for emergencies or unexpected costs – It is much less painful to pay for an unexpected cost when you have money set aside for such situations. Build this fund with the idea of having at least enough money to support your business for at least three to six months.
If budgeting has you cringing at the idea of reviewing a whole year’s worth of data, you may need to adjust your thinking. If your financials feel a bit muddy, this effort can clear things up. Budgeting provides clarity so you can make confident decisions about your business. You don’t need to be a data analyst to recognize areas where you could spend less or save more.
If you feel you don’t have time for it, then consider getting some help.
You are no longer expected to break out the giant legal pad and write it all out. I mean, you can, but there may be an easier way. Some folks use Excel spreadsheets to track finances but there is also no shame in a little 21st-century help. A budgeting app, while still a bit of homework at the start, could simplify the process of staying on top of your money.
Here are two budgeting apps I’ve tried and recommend for small businesses:
YNAB(You Need A Budget)
You can test out YNAB for free for 34 days but following that the cost is $99 a year. YNAB claims that on average, new budgeters save $600 by their second month and over $6,000 the first year. This app is best for people who want a proactive approach to their finances. You are expected to give every dollar a job by categorizing your earnings. The app even reminds you to forecast the money you’ll need for non-recurring expenses. You can directly import your transactions and spending. It is a great choice but it is on the higher side as far as cost when compared to other app budgeting options.
Mint is a free budgeting app. You can see all of your accounts in one place and receive insights including the areas you could do a better job saving. Mint also has a bill and subscription tracker to notify you of any price increases. Other features include a subscription management and bill negotiation section. One downside is that because the app is free, there are a lot of advertisements.
The best program overall is… the one that you will use!
Accounting You Can Count On
If budgeting is a task you would rather have handled by a professional, you can always contact our team. We find true joy in helping entrepreneurs grow their businesses and their wealth. We offer strategic business planning and consulting to help you develop a budget that maps out achievable financial goals. We help our clients anticipate and prioritize the right projects so that they can scale their business. As we approach the final quarter of 2023, recognize the value in budgeting and the planning that follows so that you can have a meaningful understanding of your business.