What to Consider When Building a Small Business Budget
When you run a small business, every cent counts. It is challenging to maintain a budget. Including unexpected expenses such as team lunches, new hires, and surprise expenses is essential.
A small business budget should allow you to plan and estimate future income and expenses. A pen and paper, a financial planner, or one of the many online budgeting tools can help you create a budget.
You're already a pro at managing your finances. Nevertheless, you can expect unexpected expenses to arise from time to time, so emergency savings accounts are a good idea. However, budgeting properly is more difficult when running a business with a team.
Get off the ground
You are ready to open your salon. You have been working in the salon industry for ten years. Now it is time to go on your own. Where do you begin? To create a business plan, you will need information. This includes the details and expenses required to make your dreams a reality. It is essential to determine what equipment you will need, how much rent it will cost, and the cost of fixtures and furniture. Other stylists are required as well as someone to operate the counter. All these things add up.
Secure a loan for your business
Once the business is up and running and you have invested some personal money to make a dream come true, you may still need to get a loan for your business. They will need to view your books if you choose to work with a traditional bank route. They'll also need to review your proposed budget and business plan.
Your budget tells the lender how much money you need and how your cash flow will be in your first three years of business. The bank may not accept your budget and business plan if they don't believe you are credible.
Plan how you spend your money
You will spend money on your business no matter what. The budget will give you information about how much you have available to purchase, fix or pay for your business. You are maintaining your business' health by setting a clear budget and limiting how much you can spend each month.
This will allow you to establish a "required margin" that tells you how much money you must make each month to cover your expenses. Once you have a required margin, you will pay all costs first, and then any surplus is the bankable profit.
Here's how to get your budget moving:
You should expect your income to be low and your expenses to be much higher. You won't find yourself in a tight spot because you assumed the money would come in. You're prepared for unexpected costs.
Identify your income streams, including sales, interest, and credit card payments. Then, add a percentage to your expected revenue to cover late and non-payments.
You should list your expenses, such as your phone, electricity and gas, rent, and salary. You will have to pay these expenses regardless of your profit margin. It might be challenging to make all your payments on time if the fixed costs are too close to your income. You might consider reevaluating what is regarded as a mandatory monthly expense to combat this.
Finally, you should create columns in your spreadsheet to track your income and expenses. For example, you should have one column for your actual and budgeted payment and the other for fees. This will allow you to track what you are spending and making.
Know your sales cycle
Slow seasons will occur. Even the most successful companies will experience slow seasons. Another reason to overestimate your monthly expenses is that you will be spending more than you make. Unexpected cash in can help you when things get slow.
Know your risks
Every business has risks. That's part and parcel of being a solo entrepreneur. You need to be aware of your risks to plan for them effectively.
It is important to remember that federal and state laws change constantly, the minimum wage rises with every election, and you will need to offer benefits as soon as you hire employees. It is essential to consider where you live and whether natural disasters could impact your business. You and your team must understand and cater to all market factors.
Time is more valuable than money
Remember to include time in your budget. Hourly workers require intelligent scheduling, ensuring deliveries are tracked, and keeping costs under control. There's also over time which can make a job more costly depending on how long it takes. To keep costs down, it is crucial to stick to a strict schedule.
Your budget for small businesses should be flexible
It's not a one-size-fits-all approach to budgeting for a small business. Budgets can change as your business grows. You will spend more if your business is more successful. If you are reducing your spending, then your budget should reflect that. It takes time to understand the nature of your business. You will need to adjust your budget to accommodate seasonal trends affecting your business's efficiency and profitability.