How to Create a Budget for Your Business
You want to be one of the 50% of small businesses still operating in 5 years, right? If so, you need to know how to manage business finances to solidify your stability. Without a grasp of expenses versus income, you’ll risk financial failure.
Stick around to learn how to create a budget for your business!
Identify the Fixed Costs
When you build a budget, outline your fixed costs early on. These costs refer to those items that will be ongoing expenses from month to month. For instance, a membership fee, lease, or utility bill could be considered a fixed cost.
These costs should be budgeted every month, and you’ll want to update them as needed to ensure accuracy. If you pay off a loan, as an example, that will free up more money.
Anticipate Your Revenue
Revenue refers to how much money is coming in from your clients or customers. You’ll need this money to compensate employees. And you’ll need it to cover operational costs.
You’ll want to compare revenue from year to year to track progress with your business finances. Plan on allocating how you’ll spend the revenue each year, too. If you’re a new business, use whatever standards in your industry you can find to determine what a normal revenue projection would look like.
Don’t overstate your revenue when you’re doing business budgeting, either. Resist the temptation! While it’s good to be optimistic, overshooting the number can result in devastating losses if you’re spending money you don’t have.
Determine Cash Flow Needs
When you’re determining cash flow, you’ll need to know how much money is coming in from customers. But you’ll also need to know how much you’re paying to vendors for their services. If a customer misses a payment, you won’t have as much money available to make the payments you owe.
Being able to gauge your cash flow helps you know how much money you’ll have available at a given time. Your best bet to determine cash flow needs is to use the right software. Turn to https://bentoforbusiness.com/expense-management/spend-management-software/ for help.
Develop an Emergency Fund
And when it comes to business budgeting, it’s smart to set aside money for a contingency fund. Realistically, you’ll hit some hurdles where revenue doesn’t meet expectations.
For instance, you might hit a kink in the supply chain that could throw off your progress. Another possibility is that people leave your company for other jobs and you lose momentum and efficiency for a while.
Having around 10% or more of your budget devoted to emergency funding is a good decision. You might need cash to pay employees when times are tough. This money also can come in handy when you need to replace computers or machinery quickly.
Learn How to Create a Budget
When you know how to create a budget, you can set your business up for a long and successful future. Project your revenue goals and determine how much cash flow you need to stay solvent. And make sure you’re siphoning off some money each month to go toward an emergency fund.
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