Your monthly budget is as essential as your business plan. The budget will help you measure your goals, show you how much money is left over, and allow for advertising and outsourcing.
A budget can also help reduce anxiety. When you write down the details, you’ll be able to see every month where your earnings are. You can no longer borrow money from one account in order to pay creditors.
Although it is time-consuming, creating a budget is well worth it. It is not as simple as just creating numbers and writing them down. This is a process that requires actual numbers, so make sure you have the most recent bank statements as well as vendor invoices.
1. Identify your spending categories. Make a list of all your expenses, then classify each one.
The list will vary depending on how big or small your business is, but it shows the process of categorizing. This list can be completed using your bank statements and invoices. It will also help you remember the expenses that are automatically added to your credit card each month.
2. Estimate your Expenditures. Once you have a list of expenses, it is time to assign prices to each category. What amount do you spend on these items each month? You can start with rent or salaries because they are often the same monthly price.
You will now have items that are subject to fluctuating prices from month to month. These include utilities, sales commissions and office maintenance. It’s difficult to predict the future. For example, how much heating oil will you use this winter. Take your variable bills and add them up. Divide that number by twelve months. This is the estimate you should use to budget. If you have an office budget of $3600, you will spend $300 per month on office supplies.
You might have some categories on your checklist that you don’t use often, like your tax accountant. It is an expense that you have to pay each year, but it can be quite costly so budget for that expense now. When April 15th arrives and your bill is due, you’ll have the money saved and ready to go for this expense. Divide last year’s bill by the amount of time until taxes due. This is the amount you should increase your budget.
3. Track your Spending. Keep all receipts you receive from your accountant for taxes. This will help you keep track of what you spend money each month. You can make it easier on yourself by setting aside a time each week for you to calculate your spending. Waiting until the end of the month will cause you to be overwhelmed with paperwork and encourage you to procrastinate. You can file your receipts in an accordion folder with monthly dividers. The receipts that you have entered into your weekly budget should be paper-clipped together to avoid duplicate entries.
Before you pay your bills or make large purchases at the office supply shop, consider whether you actually need this product. It is different to needing something than wanting it. For 24 hours, think about the item. You can then return to purchase the item if you are confident that it will benefit your company. You can feel great that you didn’t spend the money if you don’t remember what it was when you get up in the morning.
4. You can balance your budget. Since you allocate every dollar earned to a specific category, your goal is to reduce that number to zero. There is a high chance that this budget will not balance if it is your first.
You don’t want to spend more than you earn. It is time to cut back if your expenses exceed your income. You can find ways to reduce your office supplies and ensure that your employees don’t copy too much paper. You can put your business utilities on a budget plan to ensure that the numbers remain consistent each month.
Are there any unnecessary expenses that can be cut temporarily? My office had bagels every Friday. This was a common “perk” that I used to work in. You should also look at any memberships that you have. It is easy to forget about recurring fees that are charged each month to your credit card. This will help you determine if you are actually using them or if they are sitting unused. These fees should be removed from your budget immediately.
Now it’s time to evaluate your business goals. What number of sales are you required to balance your budget? Are you able to attract 3 new clients? Selling 100 products? Make a plan to make this happen. If you have staff, let them know so they can take the appropriate actions.
5. Review Actual Spending Each Month. When you have completed your monthly receipt entries, review your actual spending and compare it to your budget. Did you spend more in certain categories than you budgeted? Is there a category where you are in surplus?
You will be able to see when your budget is at risk by entering your receipts each day or weekly. This is a proactive way to manage your money. However, it should not become an obsession.
These numbers should be discussed honestly with you. It’s not okay to overstate your sales or count on sales that never occur. This can lead to embarrassment and damage to your reputation.
There are many financial software programs that can help you manage your budget if you’re a computer geek. Do your research before you buy. Some programs can be more complicated than others. You should assess your needs and your computer skills before you purchase the program that best fits your budget.
