Budget Realistically To Keep Your Business On Track
Your business needs a budget but when you’re just starting it, it can be tempting to skip this step. A realistic budget gives the confidence, and financial freedom, to make more informed decisions, avoid spending more than you can afford and save for the future as you grow.
This blog looks at the six easy steps you can take to creating a realistic budget for your business.
So, you’ve started your own business, excellent! You’ve got a stylish website, fantastic. You might even have bought yourself a branded mug, fancy! But have you considered creating a realistic budget?
It might seem like an unnecessary task, you’ve only just started out after all, but trust me when I say, it’s not. In fact, not creating a budget would be a big mistake as it’s such a powerful tool to ensuring your small businesses survives. Even if you don’t have all the facts and details right now, you can make estimates and put everything in place. You won’t regret it.
Our step-by-step guide to creating a realistic budget
Step 1 – Calculate your income:
This is the amount of money you receive from customers for the goods and / or services you sell. Try to forecast what you’re expecting to receive, consider seasonal trends or patterns that might pertain to your business.
Be realistic, and if you are estimating always err on the side of caution, it’s always better to underestimate and be pleasantly surprised.
Step 2 – Figure out your costs:
Once you’ve got your projected income (the bits you’ve calculated in step 1), it’s time to look at your expenses and work out your costs. These fall into three broad categories: Fixed, semi-variable and variable.
Fixed: Expenses that are likely to stay the same for at least a year. The easiest ones to budget, things like your rent, communications (mobile and internet) and insurances.
Semi-variable: Any costs which can fluctuate, think in terms of seasonal demand boom in sales could mean hiring an extra pair of hands for a while or a surge in power usage.
Variable: Anything linked to actual sales, raw materials or commissions for example. This part of your budget will need tweaking over time, just keeping checking in on it and updating as need be.
Step 3 – Prepare for the unforeseen:
Contingency planning is boring, but essential. There will always be unexpected expenditures and you need to be ready for them. Put some extra in your budget for it. If you don’t use it great but if you need it, it’s there.
Step 4 – Work out your profit:
Simple! It’s your income minus your costs. Hopefully you’ll end up with a positive number, if not there’s definitely work to be done. We can help with this, so don’t panic just yet!
Step 5 – Keep your eyes on the prize:
You’ve just created your budget, congratulations! The next step is to not let it go out of date or get rusty. Book time in your calendar every month, it doesn’t need to be a long time, just half an hour so to review your budget.
Make sure the numbers you’ve put in are still relevant and valid, if not adjust and move it forward. This is a working document, keep it to hand and update it regularly.
Step 6 – Make life easier for yourself
Cloud-based accounting tools help keep you on track and make reporting and budgeting simpler. By using bookkeeping software, you’ll be up to date 24/7 and have access to your accounts no matter where you are. We recommend Xero, it’s easy to navigate and you can get started straight away.
If any of this seems daunting or out of your comfort zone then drop us a line. Accounting shouldn’t be unapproachable, and we’re certainly not.