How to Create and Manage a Business Budget in Four Steps

Launching a business from the ground up can be one of the most exciting and stressful activities you can do. While creating a legacy which will hopefully stand the test of time, business owners also face the pressure of projecting sales, attracting new customers, and balancing a budget to keep it profitable.

But as you are starting out, what is the most effective way to create a budget and plan for future growth? These four steps can help you get a better understanding of your business, identify positives growth opportunities, and prepare for financial difficulties which may come your way.

Create a Business Plan and Outline Goals

The first step of building any successful business is creating a business plan. Your plan doesn’t necessarily need to be a complicated document with spreadsheets and graphs. Instead, you can create a simplified outline showcasing what you offer and how you anticipate sales coming into your business.

Your business plan should also outline your overall goals. Are you looking to stay small and work as a boutique company, or do you want to pursue fast expansion? Your goals will ultimately help you determine how to manage your overall budget.

Estimate Your Income Based on Activity

Once you have your “why” with your business plan and goals, it’s now time to determine the “how” through an income estimate. Getting a handle on how much you expect to bring in through sales or services will help you figure out how much you should spend on your business endeavors.

Your income estimate will vary based on what you are selling. If you are offering services with fixed contracts to a set of clients, then your income may be easy to estimate from week to week. However, if you are selling goods that you either need to procure or make, it could be a little more difficult to get a grip on weekly or monthly income as it may be based on sales patterns and economic factors.

Identify Recurring and Additional Expenses You Will Face

Once you’ve written your business plan, created goals and created an income estimate, the next step is to write down your expenses. There are three types of expenses you should prepare to track: Fixed costs, variable expenses and one-time expenses.

• Fixed Costs: Fixed costs are long-term expenses that usually won’t change much over time, which you can budget for each month. Some examples of fixed costs include rent or a mortgage, cell phone service, and software subscriptions.
• Variable Expenses: Variable expenses are those that may go up or down each month based on several factors. Some of the things influencing variable expenses include product or sales demand, utilities related to your production (like water and electricity), and labor costs.
• One-Time Expenses: One-time expenses are exactly as they sound – single expenses that are unlikely to recur. Some examples of one-time expenses include purchasing or upgrading equipment, hiring consultants, or buying software licenses.

Determine Direction Based on Your Financial Direction

With everything in place, you can now project your business performance and cash flow month to month or quarter to quarter. If you end up with more money than expenses, you’ll have a surplus that can be invested back in the business or saved for slow periods when things aren’t as good.

On the other hand, if you earn less than your expenses cost, then you will end up in a deficit, and will need to make decisions on how to cover the loss. This could require you to invest more into your business as you grow, make cutbacks to maintain balance, or take on debt to cover short-term losses.

While starting and maintaining a business isn’t easy, creating a budget can make it more manageable as you get it off the ground. If you need help with your money, the friendly experts at SESLOC are always here to help. Contact our business services team today to learn more about our solutions and how we can help you keep your enterprise moving forward.