Budgeting Your Small Business

However, if you keep the following in mind, you can put yourself on a path to having a balanced budget without driving yourself crazy in the process.

Getting Started

There are a few things you need to know before you set a budget. These include your income, expenses, and the cost of goods sold (COGS). While these may vary, you should have a fair understanding of how much money you typically spend, make, and intake based on your costs.

Your income should include all revenue streams – look for historical data or industry benchmarks of similar businesses if you are just launching. Your expenses include fixed costs (loan payments, rent, utilities, salaries, insurance, etc.) along with variable and one-time expenses, such as inventory and equipment purchases. Cost of goods sold refers to the direct costs of making the things you sell.

Revenue And Profit

Other information to know before planning your budget are your revenue and profit margins, which are not the same thing. But for budgeting purposes, you need to know how much money your business generates in each budgeting period. Your revenue minus your expenses equals your profit. This is where knowing your COGS is crucial.

Analyzing Your Expenses

It’s time to categorize your expenses. This can make it easier for you to identify areas where you can cut back on spending without sacrificing your customer or employee experience.

Budgeting Methods

Now, you have to decide which type of budgeting method you use. Zero-based budgeting means that you place every dollar earned into an expense category. Percent-based budgeting allocates a percentage of your income and revenue toward different expense categories. You can also utilize a hybrid approach to combine elements of both to create a customized budget that works for you. Many small businesses in the East Tennessee area utilize a hybrid method.

Creating The Budget

Input all of the information that you’ve gathered into a spreadsheet (or, alternately, your budgeting software) so that you can have a visual way to track your income and expenses. You’ll then want to project your incoming and outgoing funds for the next month, quarter, or year.

Creating a budget is really just a matter of knowing how much you make versus how much and where you spend. It is the details in between that can be challenging for small business owners. Best practice here: seek professional help. If numbers aren’t your niche, find a bookkeeper, consultant, financial advisor, or accountant who can help you do the math needed to keep your business afloat.

Are you ready for business ownership? Contact First Choice Business Brokers today. Our professionals can help you choose a business that matches not only your budget but your needs and goals as well.