If you are reading this blog, you probably have not created a business budget before. It can be quite scary and dare I say paralyzing for some. People get overwhelmed at the thought of having to consider every single cost or stream of income. It can truly be daunting. However, after reading this blog, you should be able to have an apt sense of where your money is coming from and where it is going. Never fear! The Money Smart Guy is here!
1) INCOME STREAMS
The first step you want to take in forming a budget for your business is looking at your sales and profits. What do you expect you will make this month? This year? The next five years? If you are a new business, consider how you will not turn a profit for likely three to five years. If you have been in business for a while, take a look at your past financial records and take into consideration not only your profit, but also your fixed costs, variable costs, semi-variable costs and one-off expenses.
There are four major types of expenses you will incur when creating a budget for your business. You want to take a close look at all of them and see if they may change as the year goes on or if they remain the same for reasons such like inflation or alterations in price. You will also want to adjust these figures, depending on the targeted amount of profit you want to earn this year. Adjusting these figures may prove helpful but hard to do. You may not be able to hire a few new employees or get all the operating materials you wanted. This will prove to be helpful in the long run, however, as it will get you closer to your goal long term.
Fixed costs are costs that remain the same monthly. These costs can include rent, utilities, payroll, website domains, and insurance, for example.
Variable costs include costs such things as printing needs and contractor wages. They are costs that vary from month to month.
Semi-variable costs are costs that are fixed but can change due to growth in the business, such as marketing costs and salaries.
One-off expenses include certain supplies such as computers, desks, or computer chairs. These do tend to wear, but they take a long time to do so.
Once you have considered both your income and your costs, you will be well on your way to developing a solid foundation for your business to run off of. Putting these figures all together to make projections and start operating as a firm will give you the strength to continue working on your business by not allowing sometimes confusing financial figures to get in the way.