The Beginner’s Guide to Budgeting for Your Small Business 21 Jun 2019

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You’re up to the task of running your small business. Whether it’s sales, day-to-day operations, or marketing, you’re confident you can do it. Except for budgeting. Figuring out your company’s finances feels out of your depth. One mistake could demolish everything you’ve worked so hard to build.

How so? Let’s say that you miscalculate what you need to charge to cover expenses. As the months pass, your bills pile up without the funds needed to pay them. Little mistakes like this put your business in danger.

However, the worst mistake you can make is not creating a budget at all. One survey found that 74 percent of companies with 1 to 10 employees did not make a budget for 2018. These business owners risked their companies’ finances and futures.

Budgets are a vital part of any business, even small ones. A realistic budget helps you plan your company’s future and growth. While the fear of making mistakes can hold you back from creating a budget, learning how to make a budget gives you the confidence to start taking control of the funds your business needs to grow.

Let’s look into why your business needs a budget and what steps you need to take to create one.

Can Your Business Last Without a Budget?

It might seem like your business is too small to warrant a budget, especially if you’re just starting out. You may feel that you need to focus on more immediate concerns, like day-to-day operations. However, budgeting is more pressing than you think.

Knowing your financial situation saves your company from disaster. As much as 29 percent of businesses fail because the owner runs out of money. Some companies seem like they could never close down, but poor money management can take out any business.

With around 9,000 stores globally, Blockbuster was once the king of video rentals. However, Blockbuster didn’t invest in keeping up with the changes taking place in their market and had to file bankruptcy due to lack of business. If Blockbuster had planned for market changes, they could have used their funds to save their business. Understanding how much money you have on hand helps you prepare for and avoid potential money problems.

Budgets do more than tell you how much cash you have. A well-prepared budget can help you secure business loans or investments. Being able to show investors your company’s current and prospective income entices them to fund your business.

A budget is vital for your business’ financial health. It protects your business from money problems and attracts investors. However, knowing that a budget is essential doesn’t take away your fear of making a mistake. How can you make a budget for your small business?

Keep Track of Your Cash

Budgets are based on facts and figures, so you’ll need to gather some financial information before you prepare your budget. Once you have all your financial data, you can combine it into a comprehensive budget. Here’s what you need to know beforehand:

  • How much money is coming in? Determine your company’s total revenue. Check your business’ income from month to month to see if your revenue changes depending on the time of year.
  • What are your costs? Your business has two types of expenses to factor in — fixed costs and variable costs. Fixed costs are expenses that don’t change from month to month, like rent and utilities. Variable costs include things like raw materials and shipping costs.
  • What’s your industry’s average for a business like yours? If your company is just starting out, use your industry’s averages as a stand-in for your financial data.

Now that you’ve collected all of the necessary information, it’s time to create your budget.

Bring All Your Data Together

Small business owner putting all of their gathered financial data into a budget

Making a budget doesn’t have to be scary. Once you have the information you need, it’s easy to create your budget. Following these steps helps you put together a realistic budget:

  • Keep all your information in one place. Create a spreadsheet or use an online template to see your data quickly.
  • Figure out how your business is doing currently. Are you making enough to cover costs? You may want to make a profit, but breaking even may be more realistic if your business is just starting out.
  • Use your business’ past data and current financial situation to project your future finances. Past and present financial data reveals if your business experiences issues like seasonal lulls in revenue. By using this data, you’ll see when your business needs to save money and when it can invest in larger purchases.
  • Consult an expert. If you’re still nervous about making a budget, have an accountant look it over. Financial experts will help you figure out complicated tasks, like preparing for taxes.
  • Check in regularly. Review your budget every month or at least every couple of months. Compare your financial projection with reality and adjust your business strategy accordingly.

Your business needs cash to thrive. Using a budget keeps track of your company’s finances and ensures that your business has the money it requires to survive.

Small Business Budgeting Doesn’t Have to Be Scary

You’re up to the task of running your small business. From sales to operations, you have it covered. With some simple steps and preparation, you’ll also have the courage to tackle your company’s budget.

When you collect your business’ financial information, it makes the budgeting process easier. Then you can use the data to project your future finances and spot potential problems before they bankrupt you. Using a budget to plan your business’ financial future ensures your business will survive for a long time.