When you’re starting up a small business you absolutely need to budget. A few thing you do need to worry about: How much does it take to operate your phone line? What is the cost of other utilities? How about the cost of a company vehicle, or what is the cost of transportation if you’re using your personal vehicle. Do you need any supplies or inventory to operate your business?
I recommend that you create annual budget, as opposed to a monthly budget, so you can identify any expenses that you may have that come up only once or twice a year such as insurance and include them in your list of expenses. This allows you to spread the cost of this out over several months so that you can plan ahead for the expense. As you work on your list of expenses keep in mind that these are the expenses that are necessary to operate your business. You may want to create a budget with just the necessities and another version of your budget with expansion expenses listed so that you can see the cost of both separately.
If you are brand new to your business you may need to use the dollar amount of your expenses to help you determine what your sales need to be in order to cover all costs and show a profit. If you have been in business for a while you can evaluate whether or not you are producing a profit by looking at historical sales figures.
As you conduct business during your budget year you should compare your actual income and spending with what you estimated. This will allow you to manage your spending so that you don’t over spend and cut into or eliminate your profits. You will also be able to see if sales have met expectations in order to cover expenses and still remain profitable.
Every small business owner should budget, no matter the size of business. I have heard some small business owners say their business is too small to budget, but that is not true. If you don’t have a written plan for what your financial obligations are and how your revenue will cover those obligations and leave some money unspent, then your business will never profit. In fact, you may out-spend your revenue and put yourself out of business.
Budgeting for your small business gives you total control over your finances. By looking ahead to what you know or can reasonably estimate what your expenses will be, you can then make financial decisions that will keep you from over-spending, or give you the freedom to invest in the growth of your business.
Every small business owner should have a budget to run their business and then review it annually. I recommend that small business owners review their budget several months before the end of their fiscal year. When I say review the budget I’m talking about comparing projected budget with actual. In the comparison you can see if your estimates were realistic.
The goal of having a budget is to stay in control of your finances. Setting the standard for your spending and revenue and having a tool to compare with actual will give you the control that you need to stay profitable. It will also give you an indication of whether or not your business is actually profitable and not just busy.
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