How to Create a Small Business Budget that Works

Figuring out your business budget could be quite the struggle, but if you plan it correctly and focus on what’s essential in your plan you’ll find that you’re more than capable of sticking to your budget and keeping some extra funds for a rainy day. Here’s how to get it sorted:

Step 1: Revenue Check

The first step you’ll need to work on is examining your revenue by looking back at your existing business and evaluating your revenue stream. Get all your income together and take a look at what you’ve got going on a monthly basis.

When deciphering an accurate figure for your income, be sure to base it on revenue and not profit. You need to know about every cent that comes into your business before payroll, electricity and investment. Expenses are deducted from your revenue and whatever remains after that is profit.

When you’re able to gather 12 months of data, you will be better able to examine how your monthly income fluctuates over time. Seasonal patterns might indicate when your low months are and help you identify your pain points – or reasons for time away from the office. Keeping a financial cushion for the rainy days could keep you out of the red and improve your cash flow.

Step 2: Fixed Costs Calculations

There are some costs that will never fail to appear on your monthly costs breakdown – think of your necessities such as rent, amenity bills, internet and server costs, stock, full-time employment payroll, outsourcing invoices and other chunks that will drain your bucket of gold whether business is peaking or not.

Another unavoidable cost per month or quarter that needs to be considered and taken seriously in every legitimate business is tax, national insurance and vat. You might also want to consider insurance and depreciation of assets into your fixed costs. Every small business is different, so think of your daily needs as a business and list all your expenses to control your success.

Once these details are calculated, deduct the amount from your revenue to get a clearer picture. But you’re not done yet.

Step 3: Variable Costs Additions

While certain expenses can be calculated as fixed amounts, there will be variable costs that do not maintain a pattern in your revenue checks. Variable expenses can include anything from replacement of faulty machinery in the office, percentage cuts from owners of the company, marketing efforts for big internal campaigns, outsourced work that is based on an hourly rate as well as professional development of your team.

While all these are necessary to help boost your business’ professionalism and working environment, it is not wise to spend during your low moths. Lean months should be kept as low on costs as possible; while peak months are the prime opportunity to invest in your company’s potential. This leads us to our next step:

Step 4: Contingency Fund Saving

A contingency fund is basically a pool of funds that should be stored away for emergencies. Keeping a monthly contingency fund will help you to get your business out of a difficult situation when the unexpected happens – think of a financial crisis, a loss of demand, a switch in the market. This can never be predetermined, but it can be calculated for.

But some emergencies could be even more out of the blue, freak situations that seem to take place when you’re already packed with work and a little bit tiger on budgets than you’d hoped. Your contingency fund could help to lessen the load, if taken seriously and planned for every month.

Step 5: Profit and Loss Statements

Identifying your profit and loss statement can only be done once the previous steps are tackled professionally. This might be one of the hardest aspects to running a business, but these above easy steps could facilitate the exercise and make it seem far less daunting.

You’re almost there; all you need to do now is a few sums to indicate whether you’ve made a profit or not. Simply add up all your expenses from Step 2 and 3 and deduct from your income figures at Step 1. If you notice a positive figure, congratulations, you’ve made a profit!

If you’re faced with a negative sum, fear not; small businesses do not always make a profit every month, so it’s far harder to make a profit at the end of a year when compared to a larger enterprise. Keep your costs low, filter through what you actually need for your business and aim at breaking even or even making a profit next year. Patience is a virtue, you will come through.

Step 6: Future Business Budgets

A forward-looking business budget is the key tool to helping you project your future earnings. No more guesswork and crossed fingers, the facts are in and will help you map out a winning solution. Right? Well, this is factual to a certain extent though, there are always unforeseen ‘situations’ that might stump you dead in your tracks – you will need to guess what your success will actually be.

All documentation of your previous budgets will serve as guidelines for future budgets. Look back at your profit and loss calculations, understand what trends are synonymous with your industry and create a path away from this pattern.

Finding an answer to the pitfalls of your company’s profit margin is tough. But, with time and key planning, you’ll be able to avoid certain trends and beat debt. Look at the seasonal lows, are they caused by holiday periods, maybe school calendars? How do these affect your margins?

Finding budget solutions could be stressful, anxiety building and sometimes too close to home for you to understand. Finding the right tools to give you that peace of mind and additional security could be the first step to your solution. Give Timestead a try, our free trial could be the answer to all your business planning needs.