Of all the steps you’ll need to take to launch your own company, creating a business budget can be one of the most daunting. Even if you’re used to budgeting for your personal expenses, creating a company financial plan can be very complicated, particularly if you’re just starting your organisation for the first time.
The good news is that if you can come to grips with some of the most essential elements of a business budget, you may find that it’s easier to keep track of your cash flow. Here are just some quick considerations that you’ll need to keep in mind when you’re building the ultimate small business budget.
1. Predicted Sales Revenue
It’s difficult to know for sure how much you’re going to earn in your company – particularly if you’re starting from scratch. However, setting some sales goals can make it easier to put a plan in place for long-term earnings and expenses. Think about your current pricing strategy. How much are you going to charge per hour, and how many hours do you plan on working per week?
Alternatively, if you’re selling a product, how much will each item cost, and how many products do you think you can sell per month? If you already have clients lined up, then you should be able to calculate your potential income quite easily. You’ll also be able to look at your competition and conduct market research to improve your chances of accurate estimation. After you’ve had your business up and running for at least a year, you’ll be able to update the data you have on your sales revenue and even make notes on changes in seasonal sales volume.
2. Production Cost and Volume
Once you know what your revenue goals are, you can begin to determine how many products you need to sell, or how much of your services you’ll have to offer to achieve your goals. Figuring out how much it’s going to cost to make your products or deliver your services is a big and crucial part of building an effective business budget. Remember, even services have costs to consider.
For instance, if you’re launching a business where you offer graphic design services to customers, then you’ll need to think about the expenses involved with buying a computer, using your home as an office or finding a space to work from and more. You’ll also need to calculate the value of your time – after all, you only have so much of it that you can devote to clients each week or month.
If you’re running a business that includes more than just you, it’s also worth thinking about costs like how much you need to pay your employees or colleagues. Only once the money you earn exceeds the money that you need to spend to run your companies are you making a profit.
3. Additional Operating Expenses
One of the biggest mistakes that business owners make when it comes to establishing their budget, is assuming that they only need to think about their “fixed” costs when calculating their production costs. However, while fixed costs like broadband and supplies are important, you’ll also need to consider variable expenses too. For instance, what if you need to hire an accountant to help you manage your taxes or pay for something to improve your marketing campaigns and spread awareness for your brand.
Remember to take all the expenses that you have to deal with as a business owner into account, not just the most regular costs. This will help you to plan around the year for the occasional fees that crop up at different times throughout the year.
4. Emergencies and Sudden Expenses
Finally, one of the most important considerations for any business budget is the emergency fund. However, this is also something that a lot of company owners overlook. After all, when you’re dealing with so many financial considerations each month, you might not always have time to think about what you’re going to do if a storm damages your office, or your computer suddenly stops working.
In some cases, your only option will be to find a loan that you can use to pay for the things you need in an emergency and keep your company running smoothly. The chances are that you’ll need to use loans and advances more frequently during the first years of running your business.
However, as you begin to learn more about your regular cash flow, you’ll be able to put extra cash during your high-earning months away towards your own emergency fund. This extra savings account will keep you protected when the unexpected happens.