Does the very thought of budgeting make you cringe? If so, you may have been reluctant to dive in and try to create a budget for your business. However, although the budget creation process may take a bit of time, maintaining a budget is actually quite easy – and the rewards are well worth the effort. An up-to-date business budget is like a cheat sheet for tracking your financial situation, and budgeting makes it easy to spot weak points in your business’s income or expenses. Here’s how to make it happen.
Step one: write down your income sources
Where is your business income coming from? Knowing the answer that question will tell you just how solid your business’s financial foundation really is, where you should focus on expanding, and where you should cut back.
If you’ve been doing a good job of keeping up your bookkeeping, you should have no trouble finding your business income sources; many bookkeeping programs will allow you to export reports into spreadsheet programs such as Excel, making it easy to add them to your budget (and using a spreadsheet for your budget makes future edits a piece of cake). If you’ve been taking a lower-tech approach to bookkeeping, pulling this information together may take a bit longer.
Step two: categorize your expenses
As money comes in, so does it go out. Categorizing and adding up all your business expenses makes it easy for you to see just where all that money is going, and whether you’re really getting your money’s worth on the things you’re buying for your business.
Business expenses generally fall into three categories: fixed, variable, and one-time expenses. Fixed expenses are the same every time: for example, rent, insurance premiums, and salaries. Variable expenses, not surprisingly, tend to vary over time: for example, utility bills, cell phone charges, and inventory costs. One-time expenses are items that you buy once and then don’t need to buy again for years, such as equipment. Sort your business expenses into the correct category and add them to your spreadsheet alongside your income sources.
Step three: compare the numbers
Now that you’ve tracked down your business income and expense figures, it’s time to step back and take a look at how they compare. You may see certain aspects of your new budget that leap out at you, such as a particularly profitable source of income or an obscenely high expense. In that case, you’ll be able to take action: find cheaper options to replace excessively high expenses, and search for new clients whose profiles match your exceptionally profitable one. You’ll be surprised how quickly just having a budget can turn your business’s financial situation around.