Budgeting Tools for New Small Business Owners
Budgeting for your new small business is much the same as budgeting in your personal life in some respects, but there’s one big difference: The income factor in your personal budget is usually somewhat fixed. Your business income can be limitless, on the other hand, or at least that’s your goal when you start out. Making and maintaining a good business budget helps you control costs and invest in growth.
What Are Your Business’s Expenses?
If you haven’t yet opened your doors, establishing what your expenses will be can be difficult, but it’s a vitally important step. Business News Daily suggests estimating high. This will give you a little wiggle room if an expense crops up that you didn’t anticipate — but you can take steps now to prevent that from happening.
“Talk to other business owners in your sector,” suggests Frank Fantozzi, president and founder of Planned Financial Services in Cleveland, Ohio. “Find out what to expect and what things surprised them most as new business owners. Were there expenses they didn’t foresee or budget for? Learn from others’ experience, then prepare a budget that includes expenses for office space, technology, travel, inventory, marketing and any other business expenses you can think of. Don’t forget to include your salary or any income you plan to take from the business, as well as income taxes you may owe.”
How Much Will Your Business Earn?
Next, estimate how much profit your new business is likely to earn. Be realistic, even conservative. Anticipate sales and other sources of revenue, keeping in mind that it could take you a while to generate a steady stream of income. Some months may be more lucrative than others, particularly if your new business is seasonal. Now subtract your long-term expenses from the long-term forecasted revenues. This is your profit margin.
Your Business Budget is Ongoing
“A budget is a living document, not once and done,” Fantozzi notes. Your initial budget should forecast and guide finances for at least your first year, then adjust it or scale it back monthly based on the previous month’s revenues and costs. Reallocate expenses that might improve your revenues, such as increasing marketing costs. Or take steps to collect receivables if you see that your business did pretty well but you don’t actually have that money in the bank yet.
If you did better than expected and have no reason to anticipate a downturn in future months, you can consider expanding your business, such as by relocating to a better location or giving your employees raises. Or, you can save a cushion to safeguard against unexpected and potentially catastrophic developments like the breakdown of a critical piece of equipment.
Business budgets tend to be much more fluid than personal budgets, so you might need some help getting started and maintaining control over yours. Quicken Home and Business software does a lot of the work for you. It categorizes your business transactions so you'll have cash flow reports and profit and loss projections at your fingertips.