Tips On How to Budget for Your Small Business

An accurate, well designed and planned budget for your small business is vital if you want to grow and succeed.

 

While a budget contains a great deal of information and effort, it has three basic functions.

• Forecast what your business is expected to earn
• Enable you to plan where you will spend revenue
• Provide a contrast between what you plan for and what actually occurs

 

Of course, these three areas require different data sources and formulas in order to create a clear and concise picture of where you are and where you are planning to go. Developing a budget begins with a review of key areas.

 

Estimate Your Revenue

This can be a tricky exercise because you don’t want to be either too aggressive or too conservative. Review your revenue for the past several years and conduct research into your industry and where the experts say it’s going. You should also take a look at the local and national economic predictions. Still confused? Industry averages are an excellent benchmark.

 

Fixed Costs

These are the costs that you incur every month – utilities, salaries, insurance, and any professional services. While you’re reviewing these costs, you can also consider which ones can be cut and determine if there are some that you don’t need. Reach out to your service providers and inquire about discounts or special deals to help cut costs.

 

Variable Costs

Unlike fixed costs, variable costs can be harder to predict because of their nature. The costs that fall into these categories can include your inventory, raw materials you may need to purchase, services that are vital to your growth, and other necessities such as travel and credit card costs. Salaries can also be included as variable costs for departments such as production and manufacturing.

 

Single Costs

Over the course of a year, you may have to purchase additional office equipment, machinery, even furniture. While it can be difficult to predict what specific items you will need, setting aside a portion of your budget will help lessen the impact of these investments.

 

Cash Flow

What’s coming into your business and what’s going out? This part of your budget requires a great deal of attention. Take a look at your company’s past performance and be sure to identify larger inflows and outflows that were anomalies and have a slim chance of happening again. Cash flow should be monitored on a weekly or monthly basis – it’s the lifeline of your business.

Profit

How much do you plan on making in the upcoming year? In this part of your budget, you can underestimate to help build a cushion. This way, if you exceed your estimates, you can park this money in a savings account or reinvest it into your operation.

Don’t forget to monitor your profit margin as the year progresses – if you’re making less revenue than your expenses, it’s time to consider cutting costs or moving money into other efforts like marketing and advertising to boost your business.

 

Scratching the Surface

Creating and maintaining a budget can be time-consuming, but it’s one of the most important areas of your business. Before you begin – or even during the year when your budget is encountering problems – Taurus CPA Solutions can help.

Our team of professionals provides expert services and acts as a resource for all of your questions.

Contact us today via our website or call 410-465-4600.