Every small business owner knows the importance of a budget. It need not be complicated but it is one tool that helps a business reach its goals and become more profitable. Not sure where to start? Here are a few tips that will help you prepare your budget and get your finances in order.
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Establish a time frame Determine the time frame upon which your budget will be established. Will it be monthly, quarterly or even annually? This is very much determined by your own situation, your payment terms with clients and how closely you can monitor and make adjustments where necessary.
Keep it simple There is no need to make your budget complicated. When you are starting out, keep it simple. An excel spreadsheet makes for a very useful and clever platform to keep track of your planned and actual income and expenses. You can always upgrade to an automated system and invest in some accounting software down the track.
Numbers to record There are a few mandatory figures that you need to include which will paint a picture of both the forecast and actual situation. Let’s walk through them:
> Income: Document your anticipated income. Whether it is based on product sales or services, what do you hope to earn in the timeframe that your budget is set up to record. Next to that, record actual income as it is earned. This way you can do a comparison down the track.
> Expenses: Budgets should include reference to both fixed and variable costs. Fixed costs are expenses that are not dependent on the level of goods or services you produce, such as rent, whilst variable costs, such as wages and electricity, change in proportion to the activity of the business.
Factor in some room to move Although you may have done your best to estimate revenue and expenses it is wise to factor in some room to move and plan for the unexpected so that you have enough money set aside just in case.
Make adjustments Your budget is not designed to be fixed in stone. Regularly analyse the numbers and identify any areas where adjustments can be made and pay close attention to areas where your budgeted figures differ significantly to the actual. Did you overlook an expense? Did you underestimate your earning capabilities? Whatever your situation, don’t forget to adjust your small business budget accordingly.
What if numbers are not your thing Not everyone has an eye for numbers and that is OK. Budgeting can be confusing and can add an element of stress to running your business which really can be avoided. If you are having trouble working out what’s what it may be time to contact a small business bookkeeping service.
They will work closely with you to get you started and establish a system that works for you and your business. Without a budget you run the risk of spending more money than you have and not giving your business room to grow.