More profit, less loss
Budgeting is important for a small business owner because it helps determine whether you are truly making a profit. It is wise to make smart estimates and match your expenses to your revenue, so you do not spend more than you bring in, or the contrary, not spend enough to grow your business. Although every business owner will have their own way of budgeting, common factors to consider include but are not limited to payroll, inventory, rent or mortgage payments, utility bills, taxes, insurance. Feeling a bit overwhelmed? Follow these easy steps to become a budgeting expert.
- Write it down
Whether you have an accountant or not, you need to always keep records of your profit and expenses. We suggest using QuickBooks or simply, an excel sheet. Create an itemized list calculating operating expenses; fixed and variable. This includes payroll and bonuses, rent or mortgage, utilities, taxes, etc. Subtract this amount from your sales revenue and you will have your gross profit margin. Always use realistic numbers and readjust as needed.
Better safe than sorry, right? If you slightly overestimate your expenses, you will be prepared for the unexpected. For construction and contracting businesses, you are bound to come across unexpected expenses when working multiple projects. This allows you to be more prepared and ready for the worst.
Equipment, new or old, doesn’t last forever and sometimes, they fail earlier than expected. Say an oven burns out a year earlier than you thought or an MRI machine flops at your practice. Plan ahead to have funds available for this type of situation. You can always apply for a line of credit or equipment financing but even then, you still need a little wiggle room.
Save a small stash
It is always best to save, especially when you are doing well. To estimate how much you should save per month, use your best judgement based on your business but we suggest 20-30%. This allows you to remain flexible and keep your business afloat, if the worst happens. This also allows for easy payback when obtaining a short-term loan, so you can in turn, double your revenue.
Revisit each month
Don’t get too comfortable. Constantly revisit you budget every month. No matter how well you know your business, your budget will change as your business grows. Constantly revisiting your budget will help you better control any financial issues. Keep an eye on economy fluctuations as well, so you are always updated with market trends.
Know your business well enough to be able to make educated guesses about your future revenue. On the other hand, if you are a startup, you will need to make these assumptions based on similar, local businesses and the general area you are located. Budgeting your business is a simple but dreaded process for most business owners. Once you have an idea of your business expenses, it will be easier to make business decisions, see where you need to cut back on spending and accurately prepare for the future of your business.