How to write and improve your small business budget
Budgeting is an important part of looking after the future financial health of your small business.
Why is budgeting important?
You should make a budget for your business to plan for the future. Your budget will help inform decisions such as:
- How much you can spend
- How much money you need to make
- Whether you are eligible for loans or other finance options
- Where you could reduce costs
- Making good financial decisions and long term success
- Where you can reinvest funds into the business
What should a budget include?
Revenue, costs and profit should all be included on your budget. Some of your costs are fixed, and some are variable. Examples of fixed costs include rent, employee salaries or insurance. Variable costs are anything which would increase or decrease depending on production or goods or services. Having an overview of these figures will let you see if you have money available for reinvestments, or if you need to reduce costs to increase profit.
The budget should also include a space for you to fill in retrospectively with your actual revenue, costs and profit at the end of the period. This comparison will help you make more accurate choices for your next budget.
How to write a budget
Your budget should include the following things:
- Fixed costs
- Variable costs
- One time costs
- Profit (total income minus total costs)
Include columns for last year’s figures, projected figures, and the actual figures from this year when it has passed.
If you have figures from your last fiscal year of business, you can base your budget forecast on these. However, if you don’t then...
Look at your operating costs
If you already have some fixed operating costs, then start your budget by recording these. If not, then you can research typical costs for your industry.
Create a sales target
Creating a sales target is a great motivator to get your business up and running. Here are a few questions to ask yourself: How many units do you need to sell to afford your expenses and make a profit? What is a realistic goal within your industry? Is your business affected by seasonal trends and how can you plan for this?
Within your budget, it’s important to set money aside for unexpected costs. Even so, it’s a great idea to adjust costs throughout the year as you go so your budget continues to remain useful.
How can accounting software improve a business budget?
Accounting software can make it really easy to look back at past revenue and costs, so when you write your budget, and review it retrospectively, you don’t need to do the math to see your past financial figures.
The Profit and Loss Report in Bokio is a great place to start when planning your budget. You can see your total income, expenses, overhead costs, gross/net profit and loss for a chosen period. These are broken down by which account they are in, so you can clearly see where you are spending your money, and make choices for your business accordingly.
Start bookkeeping with Bokio for free today to make budgeting for your business easy.