In any business, especially a new company, there are many things to implement for operations to run smoothly. Some of these things include hiring the right employees, marketing the products, and creating a business website for online reach.
However, starting a business budget stands out among all these things as it allows the company to have a comprehensive schedule of income and expenses. Some of the benefits of budgeting include:
- Projecting on business income and expenses
- Planning on expenses
- Monitoring financial performance
- Allocating the necessary resources to projects
- Planning for the future
Steps Used in Creating a Budget
Although a budget is an important planning document in a business, most business leaders do not know how to create a budget. If you do not have comprehensive information on how to create a budget for your small business, here are some practical steps you can use to create a budget that works.
1. Determine Your Expected Income
The first step in the budget creating process starts with tallying your expected income. Everything else incorporated in the budget heavily depends on the amount of money your business will be receiving.
Your primary source of income will be the services or goods sold. Depending on previous years, you can easily estimate the services or goods you will sell in a year. Additionally, any other income that you are anticipating, such as grants, loans, and gifts, should be added to your income so that you can have a total of business income plus income from other sources.
2. Determine Fixed Expenses
Determining your repetitive costs should form the next step in your budgeting process. These are costs that are known and recurrent to the business. They include rent, electricity, water bills, website hosting expenses, payroll expenses, among others.
3. Calculate Variable Expenses
Variable costs are business expenses that will vary from one month to the other. You cannot estimate variable expenses with ultimate precision. Some of the variable costs that your business is likely to incur include transportation expenses, sales expenses, communication, and shipping costs, among others.
Variable expenses are heavily dependent on the performance of your business each month. It is expected that the higher the performance, the higher the variable costs.
4. Create a Contingency Fund
A business needs to prepare for unseen circumstances such as natural disasters, market fluctuations, and drastic economic downturns. This will bring about the need for a contingency fund that is set aside to be used when the company is in immediate need of finances to handle complex financial needs.
Contingency fund accounts should also include money for massive business projects that are anticipated to be carried out in the calendar year. Most of the businesses that have budgeted for contingency situations can weather the storm with ease.
5. Create a Profit & Loss Statement
After coming up with all your incomes and expenses, it is time to determine you're running a profitable or losing venture. Take the total income and subtract the expenses. We hope you get a positive figure.
If you end up with a loss, it's not time to give up. A business is not always profitable. If it's a new business, it is likely to record a loss even after one year.
Make Running a Business Easy With These Budgeting Tips
From the steps highlighted above, it is clear that creating a budget for the business is a simple process. It is a necessary plan that cannot be ignored if the company is to succeed. You can as well look for an experienced business expert who can help you to create a successful business budget easily. Click here for more information on the budget and the budget creation process.