One of the challenges of many small business owners is setting a budget. And it’s quite understandable considering that many of them are experts in their line of business and not in budgeting or accounting. This is also one of the reasons many SMBs close their business within five years.
What’s the best way to create budget? Here are easy-to-follow tips to get you started if you are new to budgeting and accounting
1. Remember that it’s an ongoing process
Your budget is a working document. It’s not something you create one time and leave it as it for months. As your business grows, you may have to tweak your budget, too.
2. Put together all your income sources
A good budget starts with knowing how much and where your income is coming from. This way, you’d know how much money you could allot for your operating expense.
You could start with your sales figures then add other income sources if you have any.
3. Add a budget safety net
A budget safety net or contingency fun ensures that you’ll have money for emergencies and unforeseen costs. It’s especially useful when budget is tight and you suddenly need to shell out money to fix equipment, or replace damaged inventory.
4. Start with easy to compute expenses
A budget document doesn’t need to be complicated. In fact, you shouldn’t make it difficult to understand. The more complex it is, the more likely that you and your team won’t refer to it.
Start with your fixed costs. These expenses don’t change in value over time. Examples are rent, salaries, accounting and legal services, and insurance. If you have scheduled one-time spending, consider adding this to your budget document, too. Examples are repair and maintenance, new equipment, office supplies, and furniture.
Once you have all these sorted out, you may start thinking about adding variable expenses or costs that change in value, like raw materials, commissions, and marketing costs.
Creating a budget for your small business doesn’t have to be a complicated process. Start with a simple document and tweak it as your business grows. You could also consider reaching out to accountants or business consultants to help you set up your budget.