Building a Budget for Your Small Business
Cash flow is KING. Cash flow is essentially the money coming into your business minus the money going out of your business. It dosen’t take a math major to figure out that you always want the money coming in to be more than that which is going out.
If you have ever owned a credit card or debit card chances are you have experienced the calssic gut drop when you get your statment and realize you spent way more than you thought. If you don’t track your bank balance you constantly run the risk of overdrawing your account. Planning is essential.
In creating a budget you are projecting the money you expect to come in and the money you expect to pay out. The difference is what will either be invested back into the business or put food on your table. Budgets can be done for differnt lenghts of time. I recommend either by quarter or in 6 or 12 month increments. You will attempt to project your income and out go by month. This will help you plan and decrease the amount of financial surprises.
A few terms defined.
2 Types of Expenses:
- Fixed- This will include the expenses that you know are exactly the same month to month (internet, insurance, rent, loan payments)
- Varied- This will include expenses that may change from month to month (power bill, gas bill, payroll) or even be one time fees (insurance deposit, computer purchase, travel expenses, accountant fee, etc)
Projecting Income:
In creating your projected budget you will seek to identify every area of income possible. If you are a start up you are using a lot of guess work. If your business has been around a few years you can use reports from years past and have a more educated guess about income on a month to month basis. Break it down as in depth as you can.
Budget Programs:
Having a working knowledge of how to use Excel is extremely helpful in creating a budget. Linking cells in equations so you can change numbers and the math is done for you saves a lot of time.
Once Your Budget it Completed:
Upon completion of your budget spreadsheet you will have a projection of what you will be spending, when you will spend, what you “hope” will be coming in, and what the difference is. From this you can begin to figure out how you need to allocate your profit. Do you need to put some away for a slow part of the year, put it into a marketing campaign to push a new product, go on a cruise, etc.
Now, you must also track your income and out-go as it is realized. Meaning, when you pay the bills, get the money from a big job, etc, track it on a blank copy of your budget so you can compare to your projections and adjust accordingly.
A Few Tips:
- Build emergencies into your budget. Your computer could crash, a solid client could back out, have an emergency plan build in.
- PLAN, PLAN, PLAN!
- Never, ever, ever, ever stop tracking and projecting your budget. You work hard for you money, know where it is, where it is going and where it is coming from.
- “Take care of the pennies and dollars will take care of themselves.”
The majority of small businesses go under in the first 5 years due to lack of understanding cash flow and how to financial operate a business. DON’T BE THAT BUSINESS!!!
