82% of small businesses fail because of poor financial management.
You must identify your expenses to improve your company and ensure you know how much money you can use. You can do so by creating a business budget.
There are practical ways to create a budget for your business that are likely within the tools you already have.
Today we’re sharing how to create a business budget that will benefit your company. Read on to learn more!
1. Learn How to Create a Business Budget by Knowing Your Revenue
This is the money that you bring in through sales or other means. You’ll need a good understanding of your revenue streams to create a realistic budget.
Once you know how much money you’re bringing in, you can start to think about where you want to allocate that money. Using a spend management software can give us up-to-date reports of our revenue. These tools offer budgeting tips to help you learn how to run a business better.
2. Determine Your Fixed Costs
Fixed costs, like rent, utilities, and insurance, stay the same monthly. To find your fixed costs, look at your last monthly statement and add up all the expenses that didn’t change monthly. Once you have your fixed costs, you can add in your variable costs.
3. Determine Your Variable Expenses
These costs fluctuate monthly and can include things like inventory, materials, and labor. Once you have a good handle on your variable expenses, you can create a budget that will allow you to track your spending and make adjustments as needed.
4. Set Aside a Contingency Fund
It is a reserve of money used to cover unexpected expenses or unexpected income shortfalls. A well-stocked contingency fund can help a business weather economic storms and keep operations running smoothly.
First, start with a realistic estimate of your expected income and expenses. Then, set aside a percentage of your total budget for your contingency fund. A good rule of thumb is to set aside 5-10% of your budget for unexpected business spending.
Once you have calculated how much you need to set aside for your contingency fund, make sure to protect this money by investing it in a safe and stable financial instrument. A good option would be a short-term certificate of deposit or a money market account. Whatever investment you choose, make sure that it is easily accessible if you need to tap into it.
5. Review and Adjust Your Budget as Needed
Making adjustments to your budget is an essential part of the budgeting process. If you find that you are spending more than you are bringing in, you will need to make changes to either increase your income or reduce your expenses. If you find that you are saving more than you are spending, you can use that extra money to invest in your business or for future payments.
Proper Financial Management Makes a Business Successful
If you want to know how to create a business budget, start by understanding your business’ historical income and expenses. From there, you can establish a baseline for what your company expects to earn and spend in a month. Once you have that baseline, you can start adjusting to ensure your business is continuously operating within its means.
Look for more budgeting tips that can teach us how to run a business.
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