You’ve just purchased or opened a small business and you know your trade. But when it comes to bookkeeping – and more specifically, budgeting – your skill set is lacking.
The good news is that it is possible to come up with a budget, or at least a good estimation of what will be needed in terms of dollars and cents fairly easily.
Estimating and matching expenses to revenue (real or anticipated) is important because it helps small business owners to determine whether they have enough money to fund operations, expand the business and generate income for themselves. Without a budget or a plan, a business runs the risk of spending more money than it is taking in, or conversely, not spending enough money to grow the business and compete.
Getting Started with a Budget
Every business owner tends to have a slightly different process, situation, or way of budgeting. However, there are some parameters found in nearly every budget that you can employ.For example, many business owners must make rent or mortgage payments. They also have utility bills, payroll expenses, cost of goods sold expenses (raw materials), interest and tax payments. The point is every business owner should consider these items and any other costs specifically associated with the business when setting up shop or taking over an existing business.
6 Steps to a Better Business Budget;
With a business that is already up and running, you can make assumptions of future revenue based on recent trends in the business. If the business is a startup, you’ll have to make assumptions based on your geographic area, hours of operation and by researching other local businesses. Small business owners can often get a sense of what to expect by visiting other businesses that are for sale and asking questions about weekly revenue and traffic patterns.
After you’ve researched this information, you should then match the business’s revenue with expenses. The goal is to figure out what an average weekly expense for overhead, utilities, labor, raw materials, etc. would look like. Based on this information, you may then be able to estimate or forecast whether you’ll have enough extra money to expand the business, or to tuck away some money into savings.
On the flip side, owners may realize that in order to have three employees instead of two, the business will have to generate more in revenue each week.
These six simple tips will help you put together a top-notch small business budget:
1. Check Industry Standards
Not all businesses are alike, but there are similarities. Therefore, do some homework and surf the internet for information about the industry, speak with local business owners, stop into the local library, and check the IRS web site to get an idea of what percentage of the revenue coming in will likely be allocated toward cost groupings.Small businesses can be extremely volatile as they are more susceptible to industry downturns than larger, more diversified competitors. So, you only need to look for an average here, not specifics.