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Does my small
business need a budget?
"I only have a small business, I don't
need a budget."
"I don't have enough money to budget."
For many small business owners, the word "budget" is something
for the bigger company - maybe they'll have one when their
business "grows up."
What is a Budget?
simple explanation is a budget is a plan for how you will manage
all financial resources and all expenses for your business. The
basic equation that you want to demonstrate in a budget is as
(estimated )Sales minus (estimated)
Expenses = Profit (or loss)
How to create a Budget
If this is your first time to work on a budget for your small
business, you might work from the perspective of having to list
cost of goods or services plus all of your operating expenses to
start the process.
How much does it take to operate your
phone line? What is the cost of other utilities? How about the
cost of a company vehicle, or what is the cost of transportation
if you're using your personal vehicle to also serve as a company
vehicle. Do you need any supplies or inventory to operate your
business? How about any employee payroll, payroll taxes or
independent product or service providers? Remember to include
everything you spend money on to operate your business even if
you allocate some of the expenses to "petty cash" expenses, such
as parking or bridge tolls while traveling to see clients.
I recommend that you create annual budget, as opposed to a
monthly budget, so you can identify any expenses that you may
have that come up only once or twice a year such as insurance
and include them in your list of expenses. This allows you to
amortize or spread the cost of this out over several months so
that you can plan ahead for the expense.
As you work on
your list of expenses keep in mind that these are the expenses
that are necessary to operate your business. These should not be
your "wish list" unless you want to budget in some expansion or
growth. You may want to create a budget with just the
necessities and another version of your budget with expansion
expenses listed so that you can see the cost of both separately.
With a dollar figure to work with of your total expenses you are
able to set the standard for or evaluate your sales figures. If
you are new to your business you may need to use the dollar
amount of your expenses to help you determine what your sales
need to be in order to cover all costs and show a profit. If you
have been in business for a while you can evaluate whether or
not you are producing a profit by looking at historical sales
As you conduct business during your budget year
you should compare your actual income and spending with what you
estimated. This will allow you to manage your spending so that
you don't over spend and cut into or eliminate your profits. You
will also be able to see if sales have met expectations in order
to cover expenses and still remain profitable.
Every small business owner should budget,
no matter the size of business. I have heard some small business
owners say their business is too small to budget, but that is
not true. If you don't have a written plan for what your
financial obligations are and how your revenue will cover those
obligations and leave some money unspent, then your business
will never grow. In fact, you may out-spend your revenue and put
yourself out of business.
for your small business gives you control over your finances. By
looking ahead to what you know or can reasonably estimate what
your expenses will be, you can then make financial decisions
that will keep you from over-spending, or give you the freedom
to invest in the growth of your business.
Every small business owner should have a budget to start their
business and then review it annually. I recommend that small
business owners review their budget several months before the
end of their fiscal year. When I say review the budget I'm
talking about comparing projected budget with actual. In the
comparison you can see if your estimates were realistic. You and
your CPA can also plan for last minute tax strategies, or plan
to implement strategies in the up coming year's budget.
The Goal in Budgeting
Remember, the goal of having a
budget is to stay in control of your finances in advance.
Setting the standard for your spending and revenue and having a
tool to compare with actual will give you the control that you
need to stay profitable. At the very least it will give you an
indication of whether or not your business is actually
profitable and not just busy.
away all your receipts!
Yes, you can throw them all away
after you've scanned them into NeatReceipts. This handy tool is
operated by scanning all of your receipts using a portable
scanner into your computer or laptop. The software can produce
expense reports or you can import the information from the
receipts into your accounting software such as Quicken or
QuickBooks. Once the receipt has been scanned into your computer
you have a digital copy so you can through the receipt away. No
more shoe boxes full of receipts!
About the author:
Melody Campbell is The Small Business Guru. You can view more Small
Business Owner Resources at The Small Business Guru website.
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