It does not matter if you are launching your first business or have years of experience as an entrepreneur under your belt, the importance of having a budget cannot be overstated.
Creating a budget for your business will provide a guideline for expected income and expenses and enable you to compare your anticipated financial goals with the actual numbers.
In essence, it will serve as a barometer for how your business is performing. It will also enable you to plan ahead and determine any changes that should be considered.
To create a budget, you’ll need to set up a page or spreadsheet as demonstrated below:
Input unchanging expenses such as rent, loan payments, or pre-paid costs for “Fixed Expenses” and changing expenses such as utilities, supplies, etc. for “Variable Expenses.”
Determine budgeted expenses by averaging past expenses in each category. Insert the figures under the “Budgeted” subheading for expenses. If you are in the midst of starting your business and don’t have previous averages to work with, consider researching the costs associated with your line of business and creating averages based on your research.
Next, insert your forecasted income from earnings and any other expected revenue sources under the “Budgeted” subheading for “Income.” At the end of the month, insert your actual income and expenses in the “Actual” columns.
Finally, calculate the difference between the budgeted figures and the actual numbers. Place the figures in the “Difference” column and determine if your budget was in line with your actual numbers. If not, it is important to identify why the actual numbers varied from the budgeted figures, regardless of whether you incurred more expenses or income than anticipated.
By determining the reason for the difference, you can either identify a potential problem and fix it or capitalize on a potential opportunity you had not initially recognized. After determining the reasons for any differences, revise the next month’s budget with your new-found information in mind.
Remember, it’s important to remain agile and make changes to your budget as needed.