Whether you’re just starting a business, or have been operating for a while, building a budget is one of the best ways to set yourself up for long-term financial success. Budgets allow you to plan for the future, identify opportunities to streamline or grow your business, and ensure that you can invest in your business (and yourself!) for years to come.
But budgets can feel tricky – if you’re still in the early stages, you may think it’s impossible to make an accurate budget. Or if you’ve been operating for years, tracking every nickel and dime can make your head spin! But regardless of where you’re at in your business journey, having a business budget allows you to be proactive, instead of reactive, for your important expenses.
Looking to start building your business budget? Here are our simple tips to help!
Start with Expenses
Starting with fixed expenses lets you know your break-even point, and the primary bills that need to be covered. These are the easiest to find because they tend to be the same month over month (rent, internet, hosting, staffing costs, etc.). Then, determine variable expense (COGS, variable staffing, utilities, etc). You can include a variety of scenarios for this budget depending on your income for each month.
It’s also important to note down seasonal, annual, or one-time investments. If you decorate the office for the holidays, make sure you account for that expense in your December budget! If you require additional staff in the summer, make sure your staffing budget allows for that. If you have a large upcoming expense, such as new equipment or furniture, you can also begin setting aside money each month to fund the purchase, instead of having payments afterwards.
List Your Revenue Streams
Depending on your business, you may have multiple streams of income. From multiple clients, to different streams of your business, or even investment income, it’s important to account for all of the different sources of revenue your business has. If you’ve been operating for years, you can use historical data to determine what your average monthly income will be for each month. If you’re just getting started, you may want to mark down a minimum revenue needed to keep your business operating smoothly.
Most businesses have high seasons and slow seasons, so accounting for the increased revenue at different times of year is important, as it can impact your expenses as well (more sales could mean more supplies, longer hours, and additional support).
Plan for the Future
Are you thinking of growing your space, investing in new equipment, or breaking into a new market? After subtracting your expenses from your revenue, you can now start to look for opportunities to invest in your business and set yourself up on a path for growth.
If you have accrued revenue in your business, consider how that could best be spent on the business, or if an additional investment is the way to go. If you see that there’s some wiggle room in your monthly budget, perhaps a new team member to help take your business to the next level, or an investment in streamlining and automating your systems to scale would be a great way to use those extra funds!
Prepare For Any Scenario
When building a budget, it’s worthwhile to plan for any scenario. Ideally, you’d want to have a ‘break even’ budget – knowing which expenses you could cut or revenue streams you could rely on if you needed to simply break even each month. Then, you can make a ‘stretch’ budget – if you reach all your big goals, what would that look like for revenue, expenses and investment in your business?
How To Track Your Budget
The easiest way to track your budget is through cloud-based accounting software that automatically tracks your expenses and revenue, and tracks how much you have in each of your accounts for a 360-degree view of your business finances. We recommend using Xero for its simplicity, user friendly design and powerful features!
Meeting with your accounting or virtual CFO on a monthly or quarterly basis also helps you to stay on track, and get an expert perspective on your business’s finances, helping you make the most of your current position and setting yourself up for success in the future.
Looking to take your business to the next level? Reach out to Virtual CFO and let us guide you in making the best financial choices for your business.