There are a lot of things to prioritize when it comes to running a business, from creating a brand to building a website, generating leads, and marketing your products or services. But there’s one element that you should always keep on top, and that’s budgeting.
A detailed and accurate business budget is a must if you want to strengthen and grow your business. But how do you create one exactly?
The majority of small business owners and independent professionals don’t even have a budget plan, to begin with. The process of creating and maintaining a budget may seem a daunting task only if you don’t approach it the right way. So, if you want to be successful, you must know first why you need one and understand its influence on your business growth.
Why Your Business Needs A Profit-Focused Budget Plan
When launching a business, budget is one of those things that can help your business succeed. It is important to layout a powerful business budget plan, whether your business is going downhill or earning significantly.
A budget can help your business thrive and establish long-term success. It will also help you see next month to the next five years. But most importantly, a business budget can help your business in several different ways, like:
- Clarify business marketing strategy more efficiently
- Identify areas to cut spending or increase revenue
- Keep you out from debt and solve problems
- Attract investors
- Estimate future business growth
- Allocate funds for unforeseen situations
- Make a sound financial decision making
It will be much easier and efficient to operate a business if you have a conducive business budget plan. A business budget plan can also help make sure you’re spending the right amount of money at the right places and stay out of debt.
Remember to stay realistic and focus on your business’ strengths when writing an effective budget plan.
How To Create A Dynamic Business Budget Plan
As you get started writing a reliable and accurate business budget plan, you will look at your past income and expenses. The longer you’ve been in the business, the easier for you to create one. As you move to write a forward-looking budget plan, you will have more data to look back on as your benchmark.
- Dig and explore revenues
The ideal budgeting exercise is to look back at your existing business and find all the revenue sources. Add all those transactions to discover how much money entered into your business.
Calculate all possible income, and make sure to find all the money that comes into your business. Your revenue is where all the transactions come in before the expenses are deducted. Profit is what remains after you subtract the expenses.
It’s important to do this for multiple months, and at least the previous 12 months, until you have that much data available.
- Subtract fixed costs
Creating a business budget plan also requires you to add up all fixed costs. Fixed costs are where any costs or spending repeatedly occur within the business’s operations. Make sure to get as much data as you can to sum all your business’s fixed-cost transactions.
- Office supplies
- Borrowings repayment
- Deprecation of assets
Every small business is unique and will have different fixed costs, so take a few notes of other transactions that might be associated with your business’s fixed costs.
Once you have identified all fixed costs, subtract those from your income to find your business’ revenue.
- Determine variable expenses
You will need to list all your fixed costs and determine variable expenses within your business. Variable expenses are those that change over time de[ending on the services you acquire.
Many of these expenses are necessary to your business operation. You will also find other costs that may not be necessary, like education, seminars, or extras, but these are for business development.
These are optional expenses, which you can categorize as variable expenses.
- Equipment upgrade or replacement
- Office supplies
- Marketing costs
- Professional development
During slow months, you’ll need to lower your variable expenses.
- Set aside an emergency fund for unforeseen situations
Whether or not you’ve run a business before, these one-time costs don’t come conveniently. When you’re least expecting them, these costs usually come when the budget is tight. However, you can alleviate the fear of unexpected costs when setting aside a budget for these. It also helps your business have some extra cash on hand and plan an emergency fund for your business’s yearly budget.
Do not be tempted to spend any surplus income on variable expenses, and it would be best to put aside some funds when an emergency calls for spending. This way, you are ready when you need to replace equipment or furniture or upgrade your computer or software system due to bulk records that may be damaged by unforced nature.
- Create your profit and loss statement
Once you have all the above information, it’s time to put all this data to create your business’ profit and loss statement.
Remember, you’ve already done all the work, so do not feel anxious about your financial condition, plus the P&L statement is just addition and subtraction. Add up all your income and expenses for the month. Then, subtract the total expense from the income, and hopefully, you get an earning number at the net income. That’s profit; if not, that’s a loss.
- Outline your forward-looking business budget
Projecting your business’s future development, transactions, and earnings are educated guesswork when running a business. If you’ve been doing business for a while, this will certainly help the accuracy of those projections.
Once you have created your P&L, this shows the historical document of your business past. It is time to create your budget and focus on forward-thinking budget planning.
- Use Your Budget To Stay On Track
Taking the time and effort to discuss and sift your business budget may seem like a hassle. Though it is time-consuming and requires energy to do so, it’s worth the extra effort. Clear and accurate business budgeting gives you the financial insights and projections you need to make the right decision for your business to grow, compete, and thrive in the future.
How We Can Help You Create A Progressive Budget Plan
An accurate and progressive budget plan for small business owners and those who budget regularly is worth all the time, and effort. It is your business roadmap to success That’s why the best advice is to seek help when you know you need it!
Our professional coaches at Pro Business and Life Coach will help you create a budget plan that aligns with your business goals and values.
Make sure to schedule a complimentary coaching call with us to know more about business budget planning.
You may also visit us at www.probusinessandlifecoach.com to learn more about our services.