If you’re a part of the 61% of companies who didn’t create a business budget in the past year, now is certainly the time to start.
And if you’re just starting to get your company off the ground, there’s no better way to prove to investors and lenders that you’re serious about your business’s future success than by including a detailed budget in your business plan.
So, how can you create the strongest possible budget for a business?
Keep on reading to find out.
1. Know Your Past Revenue and Future Income Sources
The first step in creating a business budget is knowing exactly how much revenue you usually generate on a monthly basis (and of course, providing financial documents confirming those numbers.)
Remember that there’s a difference between revenue and profit. The former is the amount of money your business makes before deducting expenses, while the latter is how much money you have leftover after you’ve paid all your expenses.
Whether you’re a new or established business, now is also the time to identify all your sources of income — AKA anything that your business sells or uses to make money.
2. Evaluate Fixed Costs
Learning how to budget also means examing your company’s fixed costs — those bills you have to pay every month in order to stay open.
Common fixed costs include your rent, any debt payments you make, your payroll, taxes, insurance, and any supplies/inventory.
3. Determine Variable Expenses
Variable expenses are the part of your budget that, while they occur on a regular schedule, aren’t always in the same amount.
Variable expenses are usually just as necessary as fixed costs, but are also often the first expenses to be limited or cut altogether in hard times.
They can include discretionary spending, marketing, utilities, your salary as the owner, professional development courses, and more.
4. Prepare For the Unexpected
Just as you’ve (hopefully!) built up a personal emergency fund, you should also create one for your business.
Of course, if you truly cannot afford to create an emergency fund at this time, you may want to consider taking out a business loan.
5. Write a Profit and Loss Statement
Finally, now that you’ve gathered and examined all this information, you need to create a profit and loss statement.
Luckily, it’s easy.
All you need to do is add your company’s monthly income and then subtract all your expenses.
If the result is positive, you’re operating at a profit. If it’s negative, you’re operating at a loss.
Start Creating Your Business Budget with These Tips
We hope that this post has helped you not only understand how to create a business budget, but also to get a better look at where exactly your money is going when it comes to your business.
If you’re unable to reduce your operating expenses, but are in or close to the black, now might be the right time to apply for a business loan.
At Dealstruck, we’ll guide you towards the ideal lending package for your needs.
Reach out to us to learn more and apply today.