One of the most important aspects of running a small business is managing your bottom line -- which is a great deal easier if you have a working budget.
A well-planned and carefully managed budget allows you to track every aspect of your cash flow, from your monthly profits to annual expenses, and how much revenue you need to keep your business going. By putting these numbers on paper, you’re more likely to meet your financial goals and spot problems before they become crises. Here are some key points on how to create a small business budget that works for your specific needs – and, most importantly, is one you can stick to.
- Examine your revenue. The first step in creating a budget is to examine your revenue sources. Add the income sources together to find how much money your business is bringing in on a monthly basis. Calculate your income multiple months – at least 12 – so you can start to notice any seasonal patterns that pop up in your report. If your business experiences a slump after the holidays or during the summer, you’ll know to create a financial cushion for those months next year.
- Take stock of fixed costs. Fixed costs are recurring expenses you pay on a weekly, monthly, or yearly basis, including rent, supply costs, debt repayment, payroll, taxes, and insurance. Once you’ve identified your fixed costs, subtract those from your income.
- Determine variable expenses. Variable expenses are payments you make on an irregular basis, including marketing costs, professional development materials, equipment replacements, and office supplies. These can be adjusted as needed, to account for changes in business activity level or volume.
- Create a profit and loss statement. A profit and loss (P&L) statement shows a business’ revenue, expenses, and net income over a period of time (usually quarterly). To calculate a P&L statement, add up all of your income for the month and add up all of your expenses for the month, then subtract your expenses from your income. Make sure you do this for several months and include all the statements in your business plan.
- Set aside money for emergencies. Many small business owners have experienced at least one financial setback over the course of their careers, which is why it’s good to set aside a little extra money as a contingency plan.
- Forecast your financial future. Putting your budget together takes some educated guesswork. Use past statements to predict how your profit will trend over the course of the next year, then create a monthly budget based on those trends.
At the Don Ryan Center for Innovation, all of our Mentors have strong financial knowledge and experience (with many Mentors having specific accounting backgrounds) and can help you navigate the process of creating, and sticking to, a budget that works for you and your business. Access to our experienced Mentors, and being able to work with them one-on-one as you set financial goals for your business, is just one of the many benefits of becoming a DRCI member. As businesses continue to recover from the effects of the pandemic, we continue to be pleased to be offering FREE annual membership to businesses at all stages of their growth – providing them not only with the services and resources they need to help their businesses, but to provide this experienced financial guidance that can make all the difference for businesses at this critical time. Call us today at 843-540-0405 to learn more about how our free membership can help you when it comes to your financial planning and budget development -- and how we can help you set, and keep, a budget that will have a positive impact on your bottom line.