Budgeting: tips and considerations for small businesses

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It’s no secret that money is vital to keep a company running.


Unfortunately, passion alone isn’t enough to sustain your new small business — you’ll need to create (and stick) to a reliable budget to monitor your spending and outgoings and, you know, keep the whole thing afloat…


For any freelancers, start-ups or small business owners out there, setting a budget for your business can seem like a complicated task, especially whilst you’re getting to grips with all the other aspects of your new project.


But when you’re in the know, it can be much simpler than you’d think — and it can help iron out any hurdles later down the line.


If you’re not sure where to start, don’t worry. We’re here to share our top five business budgeting tips — and how to plan for success.


5 tips for building a business budget


What’s the difference between businesses that survive and those that fail? Commonly, it’s their business budget. To keep your head above water — and your finances in check — follow these steps…


1. Review your revenue


The first step towards creating a budget is to examine your revenue — especially noting months when revenue soared or dipped.


It’s common for businesses to have some months that are slower than others. And with a shiny new business, you may notice a slow burn when it comes to raking in revenue. But as time goes on, accounting for the business’ peaks and troughs in your budget can help you cushion the less profitable months (and prepare for the busier periods. You’ll thank us later…).


2. Take a look at your fixed expenses


With your revenue worked out, you’ll have a top-line figure. Now, it’s time to factor in your fixed costs.


If your small business is already up and running, look at your rent, insurance, payroll and utility costs. For companies in even earlier stages, you’ll want to use projected costs as an estimate. Once you’ve identified these expenses, add them together for your total monthly fixed costs.


If you’re a freelancer, calculate any fixed overheads like coworking memberships, the cost of commuting and any IT equipment or specialist software you need. You’ll also need to include expenses like personal and business insurance and accounting fees.


3. Factor in variable expenses


From considerations like buying supplies and stock to hiring more staff, factoring in variable costs gives you a good idea of your outgoings — saving you from coming up short and needing to borrow cash to keep your business going.


Top tip: don’t be afraid to overestimate your variable costs slightly. Having more money than expected for the month is better than the opposite.


4. Include unexpected costs


We hate to say it, but things don’t always go as planned. Having an allocated amount in your budget for a rainy day (or broken equipment, new furniture…you get the gist) not only helps you plan for these investments in advance but can be a handy backup for any emergency spending that might crop up.


5. Find your profit margin


Once you’ve noted all your income and various expenses, you’ll need to put everything together to create your profit and loss statement.


Combine your different expenses, subtract them from your total revenue and you’ll have either a profit or a loss.


Don’t be disheartened if you see a loss — not all small businesses turn a profit every month to begin with. However, creating a business budget puts you in the best position to better examine your finances, making it easier to spot areas where you can cut costs and invest more spending to drive income.


If you see a profit, congrats! You can now study your business budget to know where to scale up to improve your profit — like investing in training courses, updated software or new products.


3. considerations for your budget


Now you’ve worked out your costs, you have a great launchpad for growing your business. So, how can you get the most out of your new budget?


1. Plan for goals and growth


Working towards a goal is always important, especially when you’re a small business hoping to expand. So, factor these goals into your budget…


Do you plan on increasing your customer base by 5% every year? Are you hoping to move into a bigger facility soon? Being confident in your goals can help you plan your expenses accordingly.


Then, if your business expands, your revenue will increase — but so will your overheads. More staff, additional taxes and higher rent are all things you should consider when planning for business growth.


2. Review your budget


No business budget is set in stone. You’ll need to review and update your budget regularly to ensure it’s realistic, accurate and aligned with any changing circumstances.


Update your budget plan regularly (at least quarterly or annually) to reflect your achievements, identify your challenges and set new or revised budget goals for the future.

3. Keep it organised


Staying on top of your budget can be time-consuming, especially when your business is growing and you’ve got a million (and one) other things to do. Luckily, there are loads of reliable software out there, like Xero, FreeAgent and NetSuite, that keep track of your expenses all in one place — making business budgeting easier than ever…


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