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But before you can focus on budgeting, you need to determine what aspects of your business you want to improve. So you can decide what to do with your money. Based on this list, you can set short-term and long-term goals. These goals are directly affected by your incoming and outgoing money. A short-term goal might be to pay off debt or purchase new equipment. Long-term goals, like saving on marketing expenses, are critical as they are tied to the overall growth of your business.
They should be practical about the goals you set. They should be based solely on your company’s ability to spend and save. Once you’ve set your goals, you can create an effective and foolproof budget by following these steps. If you create a rough budget and then realize you need more money to run your business, you jeopardize your goals. Your budget should be such that you can increase your sales and profits enough as your business expands to cover your growing expenses.
Your estimated income
This is the amount you expect to earn from the sale of goods or services. It’s all the cash you bring to the door, regardless of what you spent to get there. This is the first line of your budget. It can be based on last year’s numbers or (if you’re a new business), industry averages.
your fixed costs
These are all your regular, ongoing costs that don’t change based on how much you earn: things like rent, insurance, utilities, bank fees, legal and accounting services, and equipment lease.
Your variable costs
Variable costs can include raw materials, inventory, production costs, packaging or shipping. Other variable costs may include sales commissions, credit card fees, and travel. A clear budget plan outlines what you expect to spend on all of these costs.
The cost of salaries can fall into both fixed and variable costs. For example, your core internal equipment is typically associated with fixed costs, while production or manufacturing equipment—anything related to the production of goods—is treated as variable costs. Be sure to record your various salary costs in the correct area of your budget.
Your one-time costs
One-time costs fall outside of the regular work your company does. These are start-up costs, such as moving offices, equipment, furniture, and software, as well as other costs related to launch and research.
your cash flow
Cash flow is all the money that goes in and out of a business. You have positive cash flow if more money comes into your business over a given period of time than goes out. This is most easily calculated by subtracting the amount of money available at the beginning of a given time period and at the end.
Since cash flow is the oxygen of every business, be sure to monitor this weekly, or at least monthly. You could be accumulating and still not have enough money available to pay your providers.
Profit is what you take home after deducting your expenses from your income. Growing profits mean a growing business. Here you will plan the amount of profit you plan to make based on your projected income, expenses, and cost of goods sold. If the difference between revenue and expenses (also known as “profit margins”) isn’t where you’d like it to be, you should reconsider your cost of goods sold and consider raising prices.
A budget calculator
A budget calculator can help you see exactly where you stand when it comes to budget planning for your business. It may sound obvious, but getting all your budget numbers in one easy-to-read summary is really helpful. In your spreadsheet, create a summary page with a row for each of the budget categories above. This is your basic budget framework.
Then, next to each category, list the total amount you have budgeted. Finally, create another column to the right: when the time period is over, use it to record the actual amounts spent in each category. This gives you a snapshot of your budget that’s easy to find without diving into layers of cluttered spreadsheets.
Final words: How to Create a Business Budget for Small Business
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