A well-planned, realistic budget makes it easier to manage cash flow, and it’s a tremendous help when you’re planning for your company’s future. With reputable online budgeting tools such as QuickBooks, creating a balanced business budget is simple.
Key Aspects of a Balanced Business Budget
Gather these key pieces of data, and QuickBooks can walk you through the rest of the process:
- Projected income: Refer to income statements from previous years, as well as industry trends to make sound financial projections
- Estimated cost of goods sold: If your business sells products, record your current inventory before creating a budget, and determine the cost of each product type
- Expected expenses: Include routine operating costs, such as utilities and office space, along with any foreseeable repairs or upgrades
Organize your business budget with income and expense categories that suit your company, and remember – reviewing and updating the plan often is important.
How to Create a Balanced Business Budget
When you’re starting a small business, budgeting can be one of the biggest challenges. Unexpected costs are inevitable and income is unpredictable. Thinking big when it comes to expenses and being conservative in regards to projected income are a couple ways you can ease stress and prevent your finances from stretching too thin. With a few simple tricks, you can prepare for emergencies and still leave some wiggle room in your business budget for a rainy day.
The first step is to overestimate your cash outflow. Start by going through your expenses to find variable costs such as utilities, supplies, and inventory. Then, inflate the amount you expect to spend on each item by a small, manageable percentage. This strategy doesn’t strain your finances, and it creates a cushion to help in emergencies. This way, if your electricity bill is unexpectedly high one month, it’s not a big deal because you’re paying less than you budgeted for water and heat.
The second step is to underestimate your income. After you forecast your small business cash flow, reduce those predictions by a set amount. If you work with clients, assume a bare-minimum income from each person. If you depend on product sales, use a number that’s lower than your baseline estimate. This strategy increases funds when things are good and keeps you safe when profits drop or clients are late with payments.
Once you start to accumulate extra cash, it’s important to make the most of it. You might deposit the excess funds into a high-yield savings account, or you could put them aside as a cushion for low-income months. Be sure to choose an option with high liquidity so you can remove funds quickly in an emergency.
As your business grows, it’s important to reevaluate your budget on a monthly basis. By staying on top of your financial situation and continuing to pad your expenses, you can scale conservatively and make it through tough times.
Factoring Expenses in Business Budgeting
It can be tricky trying to predict revenues and expenses when creating a small business budget. You might already have the disadvantage of a shoestring budget, but setting aside enough cash to get you through the basics of your first year can lead to positive outcomes if done correctly. When creating your first small business budget, including these basic business expenses is important.
Some costs remain the same month after month, making it easier to plan for them in the long term. First, factor in the rental cost or mortgage you pay for your work space, and overestimate the amount you’re set to spend on utilities. This means requesting typical energy and water costs from your provider and planning on spending more than the average small business bill. Salaries that keep your staff well-paid and their morale high need to figure into the equation, as do internet costs, government and bank fees, cell phone bills, and website hosting. To ensure your company follows all required regulations, you should also include costs for accounting and legal services as well as liability insurance for your premises and insurance that covers theft and property damage.
Variable costs are expenses that change from month to month, making accurate forecasting for your small business budget very important to your bottom line. Just like fixed expenses, you should also overestimate your variable costs to prevent you from falling short. Some of these costs include:
- Raw materials if you design products
- Transportation and freight for shipping
- Travel and events for marketing purposes
- Contractor wages and commissions
- Sales personnel
- Advertising and marketing costs, and
- Printing services for mailings, manuals, or other key workplace documentation
Making sure you never miss a day of production means spending money on certain one-time expenses, including machinery for producing your goods and appliances to outfit employee lunch and break spaces. You also need computers, printers, cell phones, tablets, and other key electronics to equip your employees with the tools needed to do their jobs. Desks, chairs, mats, filing cabinets, and cubicle dividers also comprise some one-time expenses your small Canadian business faces at the onset. Be sure to also include software licenses for operating systems, customized invoicing, and video or photo editing software for your marketing department. Office supplies are also a variable cost, and this includes paper for printers, pens and notepads for workers, whiteboards for conference spaces, and supplies for filing.
While starting your own business can be a scary and challenging proposition, it can also be a very rewarding experience that enhances the lives of you and your workers. Understanding the expenses required to get your small business off to a great start can give you a leg up on the competition and prepare you for growth as your sales increase and your expenses decrease. Boosting your financial literacy can prove an excellent choice for your business, and adding some padding by overestimating expenses and underestimating revenues can reduce the risk of surprises in the long-term. Always know exactly where your business stands. Make smarter business decisions now.