The U.S. Small Business Administration says the “key to a successful business is preparation.” Whether you’re just starting up or have been around for a while, understanding your expenses will go a long way toward keeping the doors open. Each business will have a different financial picture, whether it be brick and mortar, online or service-oriented, but there are six things a business owner should do when creating a budget.
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Consider Revenues & Expenses
This is the first step in determining where your business is at financially. Expenses should include everything from staffing to rent, taxes, equipment, etc. A good practice is to overestimate expenses and underestimate revenues. That way, you’ll have extra cash rather than unpaid bills left over at the end of the fiscal year.
- Determine Fixed Costs
These include rent or mortgage, employee salaries, IT expenses and more. Getting a good idea of how much you must spend each month will leave you with a clearer picture of what’s left over for variable or unexpected expenses.
- Make a Spreadsheet or Use a Software Program
Your business budget can’t be in your head. It must be recorded in a spreadsheet at least, but there are plenty of software programs that allow you to input all the necessary information and share it with members of your team.
- Map Out Goals for the New Year
What do you want to accomplish in the following year? Maybe you’d like to grow your business, hire more employees, expand online or launch a new product or service. Your budget will let you know whether you have the financial ability to do that.
- Consult Employees & Professionals
Regular employees should be involved in the budget process and consulted about their wants and needs. It’s also a good idea to talk to your CPA or financial planner to make sure you’re on the right track.
- Review, Review, Review
Creating a business budget is not a one-time process, unfortunately. You must constantly review the numbers and stay up to date on inputting information. This will give you valuable knowledge to make sound financial decisions throughout the year and beyond.
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