Accounting documents such as profit and loss statements and corporate tax returns can tell you a lot about where your business has been, but they won't tell you where it's going. For that, you'll need to draft a budget.
Taking the time to estimate what your financial picture will look like in the coming months allows you to recognize growth opportunities. If, for example, you've been running your marketing on a shoestring budget, a projected budget can help predict when you'll have enough of an income increase to expand your efforts. It can also tell you when you may need to tighten your belt a bit.
Preparing a budget probably isn't the most fun you'll ever have, but it doesn't have to be an overwhelming or daunting task. The trick is to understand the basics of the budget process and utilize a few tricks along the way. When you can have small business budgets made easy, there's no reason not to use this helpful business planning tool.
Step 1: Estimate Your Income
Before you can budget and figure out what to do with your money, you need some idea of how much you'll have to work with. Luckily, you don't have to reinvent the wheel. Start by looking at your income from the last year or two and go from there. You may anticipate making more this year as a result of a new sales campaign. Perhaps your local economy is flagging a bit, and you expect a slower year.
Whatever the situation, try to err on the side of caution when estimating future income. Calculating your income too high will make it seem like you have more money than you do, potentially leaving you short. It's better to estimate your income too low than too high.
Step 2: Calculate Fixed Costs
Once you've estimated your income, you need to determine your fixed expenses. Fixed expenses are those that stay the same over time. Your rent, for instance, remains the same each month, as does your business insurance, internet service bill, and any monthly loan payments.
Because they stay the same, these expenses are easy to track. You can make your life even more comfortable by charging these expenses on a business credit card. Many credit card companies will follow and categorize these expenses for you, making them very easy to calculate.
Step 3: Determine Your Variable Costs
Variable expenses are those that change from one month to the next. For example, during a busy month, you may have a higher electric bill since you're running machines and equipment more often. A busy month may mean a high payroll expense if employees work overtime, while a slow one may mean no overtime pay and perhaps even layoffs, both of which can reduce your payroll expense.
At first, you may need your account to help you budget for variable costs. Over time, however, you'll begin to see patterns emerge. Once you've established a correlation between workflow and variable expenses, you can figure out variable costs on your own when creating your budget. There are also numerous accounting software programs that can help with this, as many are designed to offer small business budgets made easier.
Step 4: Deduct One-Time Expenses
Sometimes you'll incur an expense that you don't often have. It's a good idea to add these to your budget, so you don't overlook them. Perhaps it's time for a new laptop, or you've decided that you just can't put off that new cell phone any longer.
If you know you're going to have to take the plunge and incur these expenses within the next year, remember to include them in your budget. Your budget need not be perfect to the penny, but the more thorough you are, the better it will serve you.
Step 5: Pay Yourself First
Now that you've laid out on paper or in a spreadsheet your expected income and expenses, you have a map of how much cash you'll likely have left at the end of each month. Ensure that you plan to set a certain amount of that money aside and reinvest it back into your business. Tuck it into a savings account or use it to cushion your checkbook balance a bit.
Even the best business budgeters sometimes run into unexpected expenses. Perhaps the business vehicle breaks down, or your laptop dies. Decide how much money you'll set aside each month for these unexpected costs, and then stick to your plan.
Once you've crafted your budget, it's essential to try and stick to it - but not to the point where you make yourself crazy. Sometimes things change, and what you predicted may not be at all what happens. Stick to the plan when you can but adapt when necessary.
No matter what happens, remember that you don't have to go it alone. We're here to help you plan and implement marketing solutions no matter your budget. Subscribe to our newsletter or give us a call today to learn more about how we can help you maximize your marketing budget.