Budgeting is historically a daunting task, and many small businesses simply don’t feel a budget will benefit them in any way, however, this could not be further from the truth. In fact, it is MORE important for a small business to budget than any other business as they are generally on a shoestring budget.
To help ease the stress, I’ve broken the task down into 5 steps in how to create your budget.
KNOW WHERE YOUR BUSINESS IS NOW
This is your starting point, you’ve been keeping your books since you started your business so USE this information to your advantage,
- What are your income sources? All of them.
- How much income is coming in – remember, we’re not talking about profit, income is BEFORE your expenses.
- What expenses MUST you pay?
- What are your business “Trends” – when are the typical dips in income? When are your expenses higher? For example – electricity expenses are typically higher in Summer and Winter for both heating and cooling.
If you are just starting out, you’re not going to have this history – to find the answers to these questions, look towards your competitors, those in a business similar to your own – what are their typical expenses and trends?
KNOW WHERE YOUR BUSINESS IS GOING.
Are you looking to grow your business? Keep it running at the same pace? What profit are you wanting to achieve?
Remember your budget is your plan, you need to know what you want the business to achieve for the year and make sure the budget reflects that.
PUT IT ALL TOGETHER.
You’ve got all the information, now put it all together.
You may notice here that you might need to make some adjustments to reach your goals.
- What can you change?
- Can you add in some marketing to generate more revenue?
- How much Revenue do you expect to receive from your Marketing expense?
- Are there any expenses that you can cut?
- What is the effect (long term as well as short term) on your business if you do cut these expenses?
There are a number of apps and software out there to assist in completing your budget, however if excel is all you have access to, it is totally fine to use it for your budgeting purposes.
IMPLEMENT YOUR BUDGET
Tell your staff members about the budget, educate them and start following the budget, let staff ask questions about the budget, they might have some valuable information you were not aware of.
COMPARE YOUR BUDGET TO YOUR ACTUALS - REGULARLY
The budget should be followed and reviewed regularly throughout the year, any changes that occur need to be discussed with the end goals in mind.
Regularly can be monthly, it does not need to be weekly, however I do suggest on a monthly basis as a minimum to ensure you are on track with the budget, and if not begin the discussion on where changes can occur to get you back on track.
Don’t be afraid to give it a go on your own, it is a big task but if you break it down among the steps your business will be thanking you for it.