When you’re starting a business, one of the most important things to sort out is the budget. A huge number of businesses fail simply because of inadequate financial planning. If you don’t get your numbers right, then you might have a hard time keeping the business alive. While budgeting might seem like a difficult thing to do, it’s not that hard. You can ensure you’re looking after the finances and sticking to a budget in a few simple ways.
So, if you want to improve your business’ chances of success, here are the eight steps to a better business budget.
Step #1: Research average budgets in your industry
It’s a good idea to start by researching the budgets other similar companies are running. While each business is always different, an industry average will give you an idea how much running costs you are expected to have.
You can find information by studying your industry and speaking with local business owners who are running a similarly sized business. Even if they operate in a different industry, they might have insight into the local expenses that will help you understand the budget.
Step #2: Create a detailed spreadsheet
You then want to start using a spreadsheet to calculate your costs and income. You want to do this before you get in business – it helps you understand how much money you need to make and what kind of price tag should you put for your product or service.
Get a quote for everything from rent, taxes, insurance, raw materials, and other costs. Calculate your estimated revenue and see how much of it is going towards the costs and what happens as your business grows.
Step #3: Prepare for faster and slower growth
Your budget should also take into account the worst and the best-case scenarios. It’s important you don’t just rely on a single spreadsheet but that you also make a positive and a negative estimate. Things don’t always go according to plan and it’s better to be prepared for both to ensure you don’t start over- or under spending.
Step #4:Identify the fixed and non-fixed costs
The key to budgeting at this point understands the fixed and non-fixed costs. Your fixed costs are much easier – things like rent will be set in stone for a specific period and you don’t need to worry about them as much. The fixed cost proportion is easier to budget because it remains the same.
But you will also have non-fixed costs and for these, you need to have the good, the bad and the average estimates. Once you understand how much it can fluctuate, you can start saving money to cover the rising costs on each month – so don’t always spend those extra profits.
Step #5: Find ways to cut costs
Once you have calculated the estimates and you have the costs written down, you need to start looking at them critically. You want to find ways to cut costs and lower your costs. Check what are the easiest costs to reduce – perhaps you can negotiate new insurance deals with other providers or you could negotiate a bulk-buying deal with a third party. It’s important to understand when you are paying too much and when there’s room to manoeuvre.
Step #6:Shop around and compare prices regularly
You might be eager to get started but it’s important to shop around and compare prices. You need to take the time and do the research to ensure you find the best deals. The opportunities to save are endless – you can find Up to 50% off selected items at Printed.com and save money with your marketing materials. If you just went with the first option you see, you might have missed an online offer like this. Therefore, you need to keep your eyes open and take the extra time to talk to suppliers and service providers. It’ll ensure you never pay too much.
Step #7: Balance investing and saving
It’s important to think about investing and saving as part of your budget. As you start making a profit, you need to ensure you use part of it to grow the business further and another part to prepare for the variable cost. The right balance depends on your industry and your business model. You can find plenty of useful tips online.
Step #8: Review and edit your budget periodically
Finally, you need to review your budget periodically to ensure it’s up to date. While many business owners make the first budget draft, they don’t often keep revising it. But your costs and your income will change as your business matures and grows – it’s important to reflect these changes in your budget. It’s a good idea to check your budget at least every six months to ensure it’s still as it should be.
With the above eight steps, you can ensure your business budget is a success.