Following business budgeting tips is essential to grow your business and understand your finances. However, only 54% of small businesses had a documented budget during 2021.
By setting a great budget, you can learn how to grow your business and improve your success.
Do you want to learn how you can create a budget for your business? Keep reading each of these small business budgeting tips to improve your business spending.
Compare to Others in Your Industry
When you are creating a small business budget, it is important to compare your business to others in your industry. While you will not be able to use the exact same budget as another company, there are enough similarities that you can use to base your budget on.
For example, you can find out what percentage of their revenue other similar businesses allocate to different areas of their budget. Getting an average idea of their spending can help you understand your organization a bit more!
When you are comparing yourself to other businesses, it is important to understand your organization. This will help you understand your habits and trends in your finances.
You should also understand your personal spending habits. These habits often transfer to business spending, so you need to work on your personal budgeting as well as your business budgeting.
Setting goals is one of the most important things to make your business successful. Without these goals, you will have nothing to work toward.
Plus, setting hard goals can help you track your progress and success in your budgeting. You can set goals for how much you want to save, what you are saving for, and what you can do to reach your goals!
As you track your budget, you can see where you met your goals and where you fell short. This makes it easier to adjust your budget and goals to meet your needs as a business owner.
Finally, these budget goals are important as they will help you decide exactly how much money you will set aside and how much you are going to spend on your business. It makes it easier to track your business income and spending and will make it easier to stick to your budget.
Start With Your Revenue
When you start creating a budget for your business, you need to start by examining your revenue. When you examine revenue for your business, you can find all of your income sources to see how much money you have coming into your business each month.
Make sure you calculate your entire revenue, not your profit. Revenue is all the money that comes into your business while profit is what remains after your expenses.
When you compile all of your income streams, it will be easier to know exactly how much money your business makes each month.
Remove Fixed Costs
After you have a good idea of the money your business makes every month, you need to remove anything that is a fixed cost. This is the money that you have to spend on your business on a recurring basis. Fixed costs can be daily, weekly, monthly, or even yearly costs.
Some of the most common fixed costs include rent for your office space, payroll for your employees, business supplies, taxes, and business insurance.
Each business will have different fixed costs, so go through your monthly costs and list everything that you have to pay for regularly. Subtracting these fixed costs from your revenue will help you prepare for these costs.
Even if you are just barely starting your business and don’t have financial data to make these decisions, you can make projections for your fixed costs.
Understand Expenses that Vary
Not only are there fixed costs for businesses, but there are also variable expenses. These are a bit harder to budget for, as they can change from month to month.
For example, utilities are a variable cost. These expenses will change depending on how much you use them! Other variable costs include office supplies, marketing and advertising costs, and more.
You can also include one-time costs with your variable costs, like replacing old equipment.
With variable expenses, you have a bit of wiggle room in your budget. During lean months for your business, you can find ways to cut variable expenses. In profitable months for your business, you can increase your variable expenses if necessary.
Have an Emergency Fund
With any budget, there will be unexpected costs. These often come at inconvenient times, so it is essential to have an emergency fund or a contingency fund. This fund allows you to set aside extra money for these unexpected costs.
If your equipment breaks down or you have another business emergency, you will not have to take out a business loan to pay for it. By having an emergency fund, you will not be afraid of the unknown.
You can incorporate an emergency fund into a 50 20 30 budget. You can spend 50% on needs, 30% on wants or variable costs, and 20% on your business savings or emergency fund.
Create a Profit and Loss Statement
Another important part of creating a budget for your business is creating a profit and loss statement. Most of the work for this statement has already been done. You simply need to add up all your income and all of your expenses for the month.
This is one of the most important Small Business Budgeting Tips. If you cannot measure it, you can’t improve it. So its important to track your income and expenses before you can increase your profitability.
When you subtract your expenses from your income, you should have a positive number if you have made a profit.
Having these statements will help you adjust your budget to make better predictions for future months.
Outline Your Budget in a Spreadsheet
Once you have researched each of these areas in your budget, you can begin to outline your budget in a spreadsheet. Using a spreadsheet will help you visualize your budget in an easy-to-understand way.
In this spreadsheet, you should estimate exactly how much money you need to allocate to your different types of business costs. This includes fixed costs, variable costs, and even one-time costs.
You can use this budget outline to predict future costs, which will make it easier to budget for your business needs. When creating a budget, you should reference your profit and loss statements, which will show you financial patterns from your past.
Leave Room for Slack
It is also essential to leave some room for change in your budget. While a small business budget is an essential tool to predict your income and spending, these estimates should not be set in stone.
You may have to deal with changes to your business or industry that will affect how much money you spend each month. To protect yourself, you should always make sure you have enough money saved before you make major changes to your business.
Leaving this room for change will make it easier to adapt to changes in your circumstances.
Review Budget Regularly
Another essential budgeting tip to follow is to regularly review your business budget. Your budget will almost never be consistent but will evolve with your business as you grow and change.
Most companies review and update their budget annually, but it may be better to do this every month or two.
Starting a business can be volatile and you may deal with many unexpected expenses. When you regularly review your budget, you will be more prepared to face unexpected changes.
Regularly reviewing your budget will help you make better financial decisions because you will know exactly how much money you can spend.
Shop Around for Better Prices
Shopping around for better prices is another great way to improve your business spending. As a business owner, you may have to pay for many services or products from suppliers.
These services will make up a large portion of your fixed costs. By shopping around for different options, you can save money on your business services and suppliers!
You can always be looking for better prices, whether you are just starting your business or if you are finding ways to cut costs for your established business. This will save you money on your business expenses and can help you increase your profit each month.
Hire a Professional Financial Advisor
Finally, you can consider hiring a professional financial advisor to help you create an effective budget for your business. A financial advisor will provide you with an outside perspective that can help you find additional ways to save money.
Plus, there are many free financial advisor tools that can help you with your business planning. There are many high-quality resources for free online business advice!
Learn More About Small Business Budgeting Tips Today
Creating a budget is essential for every small business owner. By following each of these small business budgeting tips, you can create a high-quality budget, find ways to save money and be prepared for any unforeseen financial problems that may arise.
Do you want to learn more about small business finances, taxes, budgets, and more? Tax Savers can help! We provide strategies and tips to help small businesses improve their finances.
Check out our blog today to read more about improving your business finances!