Every dollar counts when you’re a new small business owner. With little to go around, creating and sticking to a budget is essential. While you might see budgeting as a dreaded chore, it provides several benefits for your small business compared to the time and effort you put into making it.
For example, business budgets establish spending targets instead of blindly hoping you will find them on your own. They also help to establish priorities and tell others what your company cares about by the way it spends its money. Finally, budgets act as a way to measure how your business performs over a reporting period and provides you with data to help prepare future budgets.
Start with These Budgeting Basics
It’s important not to overlook any expenses with your business budget, no matter how minor they might seem. When creating your list of business expenses, be sure to assign each one the category of fixed or variable. A fixed expense is something that recurs every month and is usually the same amount. These could include rent, loan payments, insurance, and utility bills. Variable expenses either occur with less regularity or vary significantly from one month to the next. This is especially common in seasonal businesses when owners must spend more on supplies during busy months than slower ones.
Just as you shouldn’t overlook any expenses, be sure to include all sources of income your business receives to help you prepare the most accurate budget. Sales, cash flow, net profit, interest on loans made, rent received, and royalties are just some examples of common sources of business income. When preparing your budget, do so with the idea of always having positive cash flow.
Creating a Budget with Limited Financial History
Analyzing past expenses related to income is the best way to make projections for future expenditures. However, this can be challenging to do when your business hasn’t existed long enough to produce much financial data. At first, you will need to set spending categories as realistically as you can. As you review your actual spending each month, it will give you a better idea of whether you need to increase or decrease each budget category.
Flexibility in Budgeting
While budgeting is necessary for a small business, so is leaving some room for flexibility. This is especially important at first as you adjust to the true cost of doing business. One way to provide yourself with some built-in flexibility is to mark a percentage of your budget as unallocated. This also gives you greater financial resources in an emergency.
Keep Up with Accounting, Too
Once you have made your first small business budget, you will need to stay on top of accounting tasks to ensure that you follow it. Accounting isn’t something you want to put off since doing so could sink your company financially. You may know this instinctively yet still not have the time or desire to follow through with accounting. If so, we understand. Just contact Chicagoland CPAs today to learn more about our services and how we can help keep your small business on firm financial footing.