Many small business owners believe in the lie that your money controls you when in truth we tell our money where to go and what to do. Once we get this into our heads and into our daily behaviors we look at money much differently. Creating a business budget is one of the key foundation pieces to growing a successful business! Below are five simple steps to create a business budget.
1. DETERMINE YOUR GROSS REVENUE
Gross revenue is your revenue from all sources BEFORE taking out any expenses. If you are an established business you can look at the growth of your business over the past year by evaluating your Profit and Loss Statement that you can get from your accounting software or your bookkeeper. If you are a new startup with no business experience, you will need to estimate your total sales, price per product, and do market research to examine what a business of your size can expect to earn.
(We recommend that you hire a bookkeeper to help you keep track of your business earnings. It is money well spent. Ask your LifePoint Strategist if you need help finding a bookkeeper)
Month in and month out you need to look at your revenue and see if you are on target as you can’t spend money budgeted or not that you don’t have
2. DETERMINE YOUR FIXED COSTS
Fixed costs are expenses that are charged the same price each month. As you can imagine, incorporating these is by far the easiest part of creating your business budget. You can use your banking statement, your monthly profit and loss statement and or your credit card statements to determine your fixed costs.
AS THE OWNER OF YOUR BUSINESS YOU MUST DETERMINE YOUR SALARY AND PAY YOURSELF AS A FIXED EXPENSE. OWNERS WHO DON’T PAY THEMSELVES CAN EXPERIENCE BURNOUT, FAMILY ISSUES OR A DEAD BUSINESS!
3. ESTIMATE YOUR VARIABLE EXPENSES
Your variable expenses are those expenses that change each month. Many of these purchases can actually be scaled up or down depending on the state of your business, using your monthly profit. Your profit each month will be determined by the earnings you’re left with after paying all your costs.
Many business owners ask us what they should be spending on their marketing and sales expenses. While there is no hard and fast rule we have found that most companies in a rapid growth phase spend between 12-15% of GROSS REVENUE on marketing and sales. On average, most established businesses spend 10-11% of GROSS REVENUE on marketing and sales. Again historical data can be helpful or your LifePoint Strategist can help you with a starting point. ???
4. PREDICT ONE TIME SPENDS
A great perk of creating a budget is you can start to factor in one time purchases like holiday gifts for customers, a new computer or lap top, software, office supplies.
5. TRACK AND MAKE ADJUSTMENTS THROUGHOUT THE YEAR
In order to make your budgeting work you must track your actual revenues and expenditures against your projections. If your revenue isn’t on track you need to determine where you make the most money and focus on GETTING MORE CUSTOMERS. If your expenditures aren’t on track you MUST CUT EXPENSES.
It may seem a bit overwhelming when you start but by getting ahold of your business budget you will have peace of mind and more money to put in your pocket.