Whether you’ve been running your small business for years or you’re an entrepreneur just getting your feet wet, the importance of a small business budget cannot be overstated. You have to learn how to manage money before you can earn (or save!) it. A budget can track cash on hand, expenses, and how much revenue you need to make your business profitable.
Your small business budget doesn’t have to be anything fancy. It can be scratched out on paper with a pencil, laid out in a spreadsheet, or created using business accounting software, like Quickbooks. Set budgets for a determined amount of time such as, monthly, quarterly or annually. It’s best to create a budget for each of those time periods. Then you can compare your actual and forecasted expenses.
How to Set Up a Small Business Budget
Spreadsheets can really help you tackle your small business budget. As you create your spreadsheet, you’ll want to begin with your fixed expenses. These will include rent, loan payments, subscription costs, and the like. Next are your variable expenses which would include things like utilities, supplies, and labor.
Set a Budget
You can determine your budgeted expenses by averaging past expenses in each category. These expenses will likely change from month to month as different needs for your business arise. If you are just starting out and don’t have any numbers to work with, you can research the costs associated with your industry. Determine the averages based on your research, and then factor those into your small business accounting.
Forecast your monthly revenue and place it in a subheading titled budgeted income. Then, at the end of the month you can enter your actual expenses and actual income. You can then compare your budget with your actual numbers.
Analyze your Budget
Off to the side of the budget income and actual income you’ll need to determine the difference. This is the number you’ll want to reflect on at the end of each month. It is important to determine why your budgeted and actual expenses and income don’t match. Then you should make changes in next month’s small business budget to decrease the difference. By determining the reason for the difference, you can either identify potential problems. Which will help you fix it, or capitalize on a potential opportunity you had not noticed.
Entrepreneurs are capable of creating and maintaining a small business budget. However, it’s best to consult a professional CPA or financial advisor to cover all of your bases. A CPA can factor in any important legal and financial obligations you may have with the IRS.
Having a small business budget can help your business in numerous ways. You can improve business operations, create accurate estimations and effectively manage your profits. All of which lead to a more successful business and life.