For small business owners, one of the most important tasks is to build a comprehensive, thorough, and accurate budget. Having a precise budget lets you know how much money you need for start-up costs and ongoing expenses, anticipate gaps, and know how much funding you need.
As seen in the recent post, The Essential To-Do List for Would-Be Business Owners, budgeting is just one of many critical planning tasks. Once complete, a budget will help you guide decision-making and project cash flow.
A business budget consists of two parts, your revenue and expenses. Here is a closer look at how to build a business budget, starting with expenses.
1. Know Your Fixed Costs
Every business is going to have fixed and variable costs. Your fixed costs are those you are going to have to pay no matter how much revenue you generate.
These include your capital costs, such as the price for assets like equipment, furniture, and vehicles. Other fixed costs include:
- Your lease or mortgage payments
- Principal and interest on any business loans
- Utility payments for heat, water, electricity, sewer, phone, and internet service
- Web page maintenance fees
- Insurance premium payments
- Sales expenses, such as credit card fees
- Other monthly memberships
- Franchise fees
Fixed charges include labor costs, too. Salaried and hourly wages, overtime, and benefits should be considered fixed costs that will need to be paid regardless. Be sure to include your own salary in this calculation.
Marketing costs for advertising, promotions, and other awareness-raising activities should be here too.
With fixed costs, it is a good idea to indicate which expenses are a one-time occurrence and which are ongoing costs.
2. Consider Your Variable Costs
Variable costs are those that depend on the volume of business in a particular period. These include things like postage, the costs of inventory and other materials, and sales commissions.
Other one-time fees may include legal expenses, security deposits, and office supplies.
3. Remember Taxes
You will need to account for taxes paid both on revenue and those related to payroll. Corporate income taxes will be due at the federal, state, and maybe even the local level.
4. Projecting Revenue
Sales forecasts are a bit harder to project than expenses, because they are likely to be based on a lot of unknowns, especially at first. However, even conservative estimates are beneficial to determine how much you will need to keep the lights on and the doors open.
5. Build A Cushion
Even in the earliest days when your budget is tight, you will want to leave yourself a cushion to pay for those unexpected expenses that inevitably crop up. Having some protection built into your budget will help cushion the blow for those surprises that inevitably appear.
Using Your Business Budget
Making a business budget is about more than crunching the numbers. It is a tool you should use and refer to regularly. Understanding the ebbs and flows of cash is important and should be monitored closely.
Over time, you may be able to identify expenses that can be cut because things are no longer needed, you have found a less expensive supplier, or you have renegotiated contracts or utility rates.
Your revenue flows will also impact how much you have available to spend, whether you can buy additional necessary equipment, or raise salaries and wages for yourself and your employees.
Understanding the importance of business financing begins with a smart business budget. At Benetrends, we provide businesses with funding solutions and ongoing support services to help companies make sound financial decisions.
Use our online business loan calculator to calculate how much you need to start your business.