On the surface, your business may appear to be, if you’ll excuse the pun, ‘the business’. Cash is flowing in, clients keep requesting more work and you haven’t got a single bank manager or investor breathing down your neck.
Times are good, then? Not necessarily. You may have forgotten an absolute essential of business – the budget.
The absence of a budget can eat away at your business unawares. Do you know where every penny of expenditure is going? Are you sure your business is profitable? What about marketing? Will you have enough money later in the year to run any last minute big campaigns?
Your business, no matter how small, needs a budget and in this post, I’ve got 6 steps to creating one you will rely on for years to come.
Grab your favourite spreadsheet application and read on…
1. Collate your revenue streams
The first step of budgeting is the fun bit – it’s time to list your sales figures and the corresponding products and services they’re attributed to.
If you only have one product or a single service offering, this bit is relatively straightforward, but if you have several, you’ll need to list all of them in your spreadsheet as separate entries. To the right, add columns for every month of the year.
Depending on where you are in your financial year, simply add in the monthly sales so far and start forecasting what you expect to sell during the remainder of the year.
2. Work out your fixed costs
What are you spending money on each and every month? These are your fixed costs.
When listing fixed costs in your spreadsheet, you should be thinking ‘rent’, ‘utilities’ and any other service charges you have to pay without fail. Again, list them out separately, month-by-month.
3. Tally your variable expenses
Not every cost your business incurs is fixed. You’ll have ad-hoc expenditure to make note of which may include travel, hardware purchases and re-stocking. List them separately beneath your fixed costs and do your best to estimate future variable costs (absolute accuracy isn’t required here, just an honest bit of guesswork).
4. Consider one-off spends
One of the best things about a budget is that it enables you to predict and factor in one-off expenditure instead of having to deal with it as and when it arises.
Some things creep up unawares (the unexpected garage bill for the van, for example), but you can predict others. An impending laptop replacement, website redesign or software purchase are great examples of one-off spends you can factor into your budget.
Now you have your sales and costs mapped out, you can create a profit/loss column at the bottom of your spreadsheet. The calculation is simple; subtract all of your expenditure from your sales figures. What are you left with? A surplus or negative?
6. Create a budget for next year
Chances are, you’re starting this budget having already begun your fiscal year, so it’s important to get a head start for next year by creating a final budget for every line of income and expenditure.
This single figure for the year is what you intend to bring in, revenue-wise, and your projected expenditure. We’re back to the fun bit – it’s time to plan for an even more profitable year next time around!
See? Creating a budget is actually pretty simple. The hard bit is sticking to it and continually analysing your company’s performance against the budget. Make it a weekly job on your to-do list.
Budgeting is entirely a numbers game, and the beauty of it is that you can experiment. Try upping your sales targets for the rest of the year and increase the costs associated with meeting them. Are you still profitable? If not, where can you make cuts to improve your bottom line?
Budgeting is fun and an absolute business essential – create yours today by using the steps above. Just remember to run it past your accountant to make sure you haven’t missed anything.
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