By Yhordan Serpentini | February 17, 2023
Recently, we’ve been discussing a lot about budgets for your business; however, creating a budget really depends on not only your business, and your liabilities and assets, but also on your knowledge of how to create one. In this blog post, we’ll explore some of the most essential factors to consider when creating a budget, including the importance of setting financial goals, understanding your industry’s financial trends, and how to accurately track your expenses.
1. Realistic Goals
The first step in creating a small budget is understanding that you need to set realistic goals and realistic standards. Remember that a budget is solely a financial strategy for saving your money after all of your necessary expenses have been met, which means that you cannot add unrealistic savings or unrealistic spending either.
2. Analyze Current And Past Information
Your budget should always accurately reflect your business expenses and revenue, and a part of this comes from analyzing your current, and past, financial information. You may be wondering, why? Well, you need to analyze your current financial situation to understand what your current income and expenses are, how much you are earning and spending each month, and assess your current financial standing.
Next, your monthly revenue and expenses are estimated by calculating just how much money you’re bringing to the table and what the average difference is after expenses are paid for, so you don’t over- or under-estimate. Doing this means you’ll need to go in-depth a bit on your financial history so you can have a better idea of where your money is or will be going.
3. Distribute Everything
Once you have a number for your budget, you’ll be left with the remaining difference—except, not really. Whatever money you have left should not just be piled up in a corner of your bank account. You should always distribute everything you have, based on priority; in other words, you can branch categories to distribute the remaining difference after expenses (since they are the top priority), including a savings fund, an emergency fund, some money set aside for taxes, and some money to reinvest in your business; you can also set aside some “me money” for you to spend on yourself—just make sure it is a reasonable amount that won’t impact your other goals.
4. Track And Monitor
One of the most important factors to consider with your business budget is to ALWAYS update it, each month. A budget isn’t just a one-time plan that you follow and leave unmonitored. You need to update it each month to ensure that you still have the most accurate financial plan for your business. This means, you will have to recalculate your revenue and expenses and alter your goals, as well as how much money you are pouring into each category, as you eventually gain more profit—and like-wise, more expenses.
Now, thankfully due to our digital era, not everything has to be done through physical labor anymore. If you aren’t fully available like you used to, to update your budget, you can use budgeting tools or automated budgeting software to your advantage, or you can hire an accountant or a bookkeeper to help with your budget, as your business’s financial history inevitably grows.
5. Leave Funds For Debt
One of the most unfortunate parts of being an entrepreneur is the likelihood of you getting into debt. As mentioned in previous blogs, getting into debt is not necessarily a bad thing, if you know exactly what you’re doing, have a plan to quickly pay it off, and are disciplined with your credit. When making a budget, you may need to prioritize more of your remaining profits on paying off your debt, depending on how much you need to and what your revenue looks like. If you have the ability to do so, set aside a separate fund for your debt so that way you can pay it off without it taking too much of a bite off your revenue.
Disclaimer: This blog is not intended for financial advice
Sources:
- How to create a small business budget in 8 simple steps – zoho books. Essential Business Guides. (2021, August 20). Retrieved February 17, 2023, from https://www.zoho.com/books/guides/how-to-create-a-realistic-business-budget.html
- Stobierski, T. (2021, November 16). How to prepare a budget for an organization: 4 steps. Business Insights Blog. Retrieved February 17, 2023, from https://online.hbs.edu/blog/post/how-to-prepare-a-budget-for-an-organization
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