Nothing is more essential to the health of your business than a well-planned budget. So many businesses fall into the trap of setting a budget blindly, but doing so can spell disaster for any company. Take matters into your own hands with these tips on how to budget for your business.
1. Determine your revenue
The first step is to calculate the amount of money your business brings in from month to month. Try to do this for as many months as you can; the more information you have, the better you’ll be able to predict future trends.
2. Calculate fixed costs
You likely have a variety of recurring costs - these could be anything from rent to taxes to payroll. Account for them all and tally up the totals to calculate your total fixed costs. This will bring you one step closer to determining the total income and to budget for your business.
3. Factor in variable expenses
Variable expenses can be much trickier to figure out. These encompass fluctuating necessities such as utilities and extra expenses that could improve your business, such as marketing campaigns.
4. Prepare for unexpected expenses
We all know that additional expenses can come at unexpected and inconvenient times. Prevent these from sinking your business by establishing room in your budget for unforeseen and emergency costs.
5. Establish a profit and loss statement
When you’ve compiled all the above information, subtract your expenses from your revenue to create a profit and loss statement. Also known as a P & L, this gives business owners a true indication of the wellbeing of their businesses. The goal here is to have a positive number, which indicates a profit. Don’t fret if the number is negative, though: income can fluctuate monthly, and turning a big profit is even more difficult for newer businesses.
6. Create your budget
You should now have all the tools you need to create a budget. Unexpected expenses can always come up, but you should now know how to adequately prepare for them. Based on this wealth of information, you can infer which investments you should focus on and prepare for possible pitfalls in the future. With this budget, you can take your business to entirely new heights.
