eting for small businesses: Tips and Advice //

Cash flow is important to any business but even more so for small ones. Budgeting is a critical part of many small businesses, especially those that are just getting started.

By paying close attention to factors such as fixed and variable costs, and projected revenues, you can make better decisions for your business’s long-term success.

This article will provide you with some key budgeting tips for small businesses to ensure that your business is financially healthy.

Why Your Small Business Needs a Budget

Even in the early stages of a small business, budgeting is essential. Budgeting gives you a clear picture of the financial future of your business, so that you can make informed decisions for long-term success.

Creating a budget for your business is also beneficial.

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  Recognize revenue-boosting opportunities
  
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  Avoid debt during slow months
  
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  Reducing unnecessary expenditures
  
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  Maintain financial order when negotiating with potential investors or lenders
  
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  Reinvest surplus funds
  
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  Learn about the spending areas and future growth trends
  
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  Ensure profitability
  

Create a budget for a small business in 7 easy steps

1. Add up your total income

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You can’t create a budget without knowing how much money you have to spend. This is a critical error that many small business owners commit.

This question is easy to answer for a business with a single steady revenue stream, such as an ecommerce company. This is the amount of revenue that you receive from your sales. For other types of business, you might need to look at the situation more closely.

You’ll want to keep track of your income sources and locations if you own more than one. You can have different revenue sources, such as:

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  Sales generated from events such as trade shows and other events
  
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  Sales in other locations like brick and mortar stores
  
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  Side projects or freelance projects
  
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  Separate consulting fees
  

Try to review the last year’s figures to get an idea of what your revenue and averages are, especially if it’s a seasonal company with peaks and valleys. Start with a modest budget if you are a new business. You’ll end up making more money than you expected.

2. Calculate your Fixed Costs

The fixed costs are those predictable, constant business expenses that occur on a regular basis, be it per week, month, year, etc. Accounting software is a great tool for this. You can go back in time and look at these recurring expenses if they are not already noted.

Here is a list of examples of fixed costs.

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  Rent your office/storefront equipment
  
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  Items that need to be replenished regularly
  
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  Taxes, insurance and loan payments
  
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  Benefits and Payroll for Salaried Employees
  
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  Internet service and telephone service
  
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  Web hosting service
  
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  Tools, subscriptions and memberships that charge a monthly fee
  

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3. Don’t forget variable costs

The dollar amount of variable costs varies month-to-month. They can be more difficult to track than fixed expenses, so keep an eye on them.

Here is a list of examples of variable costs:

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  Raw Materials for Production, which Vary Depending on Your Output
  
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  Shipping costs and delivery charges that vary depending on the volume of your sales
  
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  Tools for your office or shopfront
  
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  Non salaried employees, such as part-time workers, freelancers or other contractors without a monthly salary agreement
  
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  Marketing effort (which can be fixed by a marketing plan, or outsourcing to a marketing agency)
  
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  Travel expenses for business meetings and events
  
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  Other costs such as professional development and training
  

Budgeting for small businesses can be a challenge, particularly if you want to cut costs or save money. These expenses are the first to be looked at when attempting to reduce costs.

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4. Budget for infrequent spends

They can easily be overlooked and ruin your budget. Think about the purchases you make less often but need to make.

Hardware purchases can include laptops, label makers, or even machinery. You don’t purchase these items on a regular schedule, but they can be a major drain on your budget.

This holds true especially when the purchases you make are essential to your ability to run your business effectively on a day-to-day basis.

5. Create a contingency account

It is important to budget for unexpected expenses. What happens if you have an accident or your equipment breaks? A budget for these situations can reduce stress and help maintain financial stability.

Shopify Capital, which offers small business financing options, can be helpful. A reliable contingency account offers peace of mind and added protection.

6. Profit and Loss Statement

Do the math after you have calculated your expenses and income to find your profit margin.

Add up all of your earnings. Add up all your expenses, including both fixed and variable expenses. Subtract your total expenses from total income to determine if you have made a profit.

Here is a budget for a small company:

Expenses:

Fixed Costs

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  Internet: $65
  
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  Insurance: $100
  
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  Office Supplies: $30
  
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  Software Subscription: $50
  
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  Utilities: $80
  

Total fixed costs: $325

Variable expenses

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  Freelancer wage: $800
  
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  Travel and Entertainment: $150
  
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  Marketing & Advertising: $400
  
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  Raw Materials: $600
  
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  Shipping and Logistics: $200
  

Total variable expenses: $2,150

One-time expenditures

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  Equipment upgrade: $300
  
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  Professional Training: $250
  
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  Website development: $500
  

Total of one-time costs: $1,050

Total expenditures: $3,525

Total income ($6,000) – Total expenses ($3,525) = Total net income ($2,475)

If you have a profitable business, examine your budget carefully to identify strategic investment opportunities that will enhance your efficiency and promote growth.

Stay determined if you have suffered a loss. Small businesses are not always profitable. Instead of dwelling on your setbacks, identify areas for improvement. Prioritise revenue generating activities to boost your financial performance.

7. Plan your budget for the next months

After completing the required work, you will have a detailed record of your company’s finances. Budgets are not just about the present, but also the future. Although it is impossible to predict future incomes and expenses, past data can be used to make some fairly accurate estimates.

Create a budget document that includes all revenues and expenses, and is based on your historical profit and loss statements. Consider the timing of equipment or hardware purchases, and allot funds to new acquisitions or professional services.

Make it a habit to start and maintain

It can be overwhelming to budget for a small business if you are new at it. The bottom line: Small businesses must keep a close eye on their business expenses and cash flow.

You’ll make better decisions if you know how much money you have coming in and going out. You will be able create a budget that is forward-looking, one that finances your growth while accounting for the unpredictable nature of owning a small company.

Budgeting in small business FAQ

What is a good budget for a small business?

Budgets for small businesses should include all expected income such as salaries or investments. The budget should include all expenses such as rent and insurance, salaries and utilities, along with capital expenditures, like new technology or equipment. Don’t forget about other important elements in your budget for your business, such as marketing and advertising costs, taxes and any associated fees.

What are the different budgeting methods?

• Budgeting incrementally: The budget of the previous year is adjusted for inflation, material costs and sales performance. This is a conservative way to update your budget.
• Activity-based Budgeting: This method allocates money based on the performed activities and recognizes them as primary cost drivers in an organization. This method allows for targeted resource allocation, and aligns budgets to the actual activities that contribute to the organisation’s goals.
• Zero-based Budgeting: In zero-based budgeting, you start from scratch every year. All expenditures must be justified, and allocated to specific departments or project.
• Rolling Budget: A rolling budget is updated and revised regularly to reflect changes in market conditions or growth of the business. This ensures that budgets are relevant and in line with the changing financial needs of the business.

What is the budget’s 5 main elements?

• Income: Earned income from different sources, such as investments, wages and government benefits.
• Savings: Costs of transportation, food, healthcare, housing and entertainment.
• Expenses : Savings for future goals such as education of children or retirement.
• Debt: Financial obligations and outstanding loans
• Emergency Fund: Reserved fund for unplanned expenses such as medical bills or auto repairs.

What is the 50/20/30 Budget Rule?

This budgeting rule is widely accepted. This rule states that business owners should allocate 50% of their earnings to essentials like groceries, utilities, and housing. They can save 20% to achieve financial goals and spend 30% on lifestyle expenses, such as entertainment.

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Author: Adeel Qayum