Whenever I'm chatting with a business owner, and I say the B-word, I almost always see a cringe in response. What's the B-word!?
Budget, of course.
Your business budget can help you take your business to the next level and save you from the lows. If you have a general idea of what you're spending each month, that's a start but creating a set business budget is necessary to achieve the goals you made in your strategic plan.
Let me share a little more about what your business budget can do for you as well as tips for creating your budget. Just a warning, I'll be saying the B-word a lot, and by the end of the article, you will love hearing it!
What is a Business Budget
I'm sure you're familiar with a budget and how it works, but let's go through a quick refresher and share why a business budget is a little different than a personal one. Basically, your budget is what you estimate your expenses and revenue will be over a period of time!
You can use historical data to create your budget if you're already in business. If you're not in business yet, you can still create a budget based on estimated costs. The important thing is to create one in the first place. You may need to tweak your budget, but that is okay and inevitable.
Your business budget can make or break your profitability! I walk through my profitability analysis process in a different article. Still, to summarize, I review a business's financial statements and underlying data to see what money is coming in and what money is coming out. This process gives us valuable insight into your spending and provides opportunities to cut spending and maximize investments! We need your budget to know if spending is up or down and why.
5 Tips to Create a Business Budget
Creating a budget sounds about as fun as a trip to the dentist, but it's just as necessary! The more you understand your business financials, the better. Once you're in the know, you can make better financial decisions and ultimately grow your business! Trust me when I say that I've seen it all when it comes to a business budget. I've helped companies steer away from debt, and I've even been able to tell business owners that they have room to spend more!
Let's start crafting your budget! For this example, we will use the past 12-months of financial data in your business.
1. Start with Your Revenue
The fun part is first! You’re going to review your revenue month over month for the past 12 months. As you go through this process, note which months your business experiences highs and lows.
2. Review ALL Expenses
Now, we need a list of all expenses! These generally go into two categories; fixed and variable. Below is a list to give you an idea of where to start. In a nutshell, fixed expenses are the same every month, while variable expenses can change monthly.
Fixed Business Expenses:
Rent
Insurance
Payroll
Taxes
Software
Variable Business Expenses:
Supplies
Marketing & Advertising
Professional Development
Contractors
Membership Dues
3. Create Profit and Loss Statement (P&L)
This critical piece of data will help you so much! Don’t be afraid of it. You’re going to list your income and then subtract all your expenses to show you the balance at the end of the month. Not as profitable as you thought? This is completely normal for most businesses. You will have better months than others. It’s planning ahead that matters.
4. Create Emergency Fund
You may have heard of needing an emergency fund for your personal finance, and you also should have one for your business finance. The best bet is to have at least one month of businesses expenses saved. If your business experiences slow months, you’ll want to factor in that as you plan for emergencies.
5. Outline Your Future Budget
Now that you know what you’ve been spending and where you can make decisions moving forward. Are there are expenses you need to cut? Do you have room to invest? If you’re feeling overwhelmed, start with the next month. Historically, what income and expenses can you expect? Can you make adjustments to your business to reach a new income goal or reduce spending to achieve your goals?
Do You Need a Business Financial Consultant?
After reading this, I hope you feel empowered and ready to tackle your business budget. If you're not, I want to assure you that you are not alone! Sometimes it takes outside support to accomplish this task and stay on track. You might be ready to consider working with a business financial consultant. I invite you to schedule a complimentary connect consultation with me if you are. This is a no-pressure connect meeting to get to know you and your business goals.
