5 Tips on Budgeting your Business
One of the most difficult tasks of business owners is to properly manage their finances. This isn't from lack of funds, or lack of intelligence, but from a perceived lack of time. However a carefully planned business budget will save you a fortune in both the short term and the long term, and it will make your time much more efficient overall. Once you've set up the budget, each category within it will simply take care of itself. All it takes is the motivation to sit down and do it now - don't put it off until it's took late.
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Think of a budget as a business tool
A business financial plan doesn't need to be dry and boring. This document can be a living document that changes and modifies as your business needs change and your goals and progress expand and grow. You don't need to stick to strict numbers in every single category - but the bottom line of each column should certainly add up and remain out of the red. Your overall bottom line should be balanced and positive - or else your doing something wrong! Your financial plan should help you set your future goals and provide a measurable way that you can gauge your progress.
Start with a Target Revenue
Let's face it - we all want to make a fortune, but Rome wasn't built in a day. Estimate a sales revenue target that is both challenging and realistic. Remember, targets are a realistic stepping stone that you will use to climb to the next level. Don't over-extend yourself early on by setting that stepping stone too high. Make it reasonable so that you can enjoy some early success, which will motivate you to continue succeeding into the future of your business.
Calculate your Estimated Gross Margin
Sounds like more boring financial talk doesn't it? Well it's not. It's the heart and soul of your business. Basing your estimates on your past experience conducting business, estimate the cost of your goods (or use last years records), and subtract that cost from the estimated sales revenue from above - this is your estimated gross margin. This gives you some idea of what kind of potential profit you can expect if you are successful in meeting your estimated sales revenue.
Calculate net Income
The most common items that typically destroys a business budget are the variable expenses. For this part of your budget, you'll need to estimate variable expenses (such as travel), and fixed expenses (such as supplies). Subtract these expenses from your gross margin, and this will provide you with your estimated net income. The estimated net income can be a fantastic motivator for you to meet your goals. As you work toward your business success, this will be a constant reminder for you of what you have to gain if you succeed.
Constantly Monitor Success
The only way to know if you're winning the race is to capture some overview of where you are. You can do this by breaking your annual budget up into quarters and monitoring your financial progress every three months. This way, you will immediately notice problems before they can get worse, and it will give you an opportunity to make corrections and recover before you end up sliding down a slippery slope.
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Posted in Financial Services Post Date 02/26/2017