Of the businesses that fail, 82 percent can trace the cause to financial challenges.
This means having a good handle on your business’s finances goes a long way in your quest to run a successful business. There are many financial decisions you need to make to keep your business afloat, but one of the most important is to have a business budget.
Creating a business budget is crucial to your success. Unfortunately, just as in personal life, most entrepreneurs don’t have a budget. Don’t be one of them.
Here’s your guide to creating a business budget that works.
1. Know Your Income (Revenue)
Do you know how much money your business pulls in?
If you don’t, there’s no way you’re going to create an effective business budget. The first step to creating any budget is to know how much money your business is making within a certain period of time. For example, if you’re creating a monthly budget, you ought to know how much money to business makes in a month.
The good news is this is an easy thing to do.
If you’re a 100% online business, just go to your sales software and look at the analytics. You’ll have an instant answer on your sales.
If your business has multiple sources of business income, track the revenues from all of them.
Of course, tracking your revenues can be difficult, especially because sales are bound to fluctuate from month to month. In this case, you can monitor monthly revenues for a couple of months, then estimate an average.
You can also use a professional ERP service, such as https://www.golimelight.com/, that helps businesses draw revenue forecasts.
2. What Are Your Expenses?
Now that you know your income, the next step is to track your expenses.
There are fixed expenses, such as rent, salaries, interest on loans, and insurance premiums. There are also variable costs, such as transaction fees, cost of raw materials, billable labor, and commissions. In short, fixed costs don’t change from month to month while variable costs can change depending on the needs of the business.
To run a profitable business, all your costs must be lower than your revenues, and this is the premise on which any business budget should be based. In some cases, however, it’s okay for expenses to be higher than revenues, but usually, until the business starts making more money.
3. Create a Balanced Budget
With a good handle on your revenues and expenses, it’s time to create a budget that works for both the business and your profitability needs.
Knowing how your business operates, you’ll identify where to allocate more money and where to cut back on. If you want to increase your profit, for example, you have to cut some of your expenses, as long as the reduction doesn’t negatively affect the business’s operations.
If your goal is to improve operation efficiency, you’ll create a budget that allows you to do so. For example, you can allocate more money to staffing costs, enabling you to hire more employees.
Creating a Business Budget Made Easy!
Without a small business budget, it’s hardly possible for your company to make it. But it’s one thing to have a budget and it’s another thing to have an effective budget. With this guide to creating a business budget, you now know what it takes to draw a budget that works for your business.
All the best and stay tuned to the business section of our blog to learn more.