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The Basics of Creating a Business Budget

December 15, 2021
The Basics of Creating a Business Budget

The Basics of Creating a Business Budget

Like any successful project you undertake, it’s key to take the time to effectively plan for its outcomes and ultimate prosperity, and a business budget does more than provide clarity into your expected income and spending throughout a given year, it’s the roadmap to your organization’s accomplishments and reputation.

In fact, a very wise leader in the Black community once said,

“A budget is more than just a series of numbers on a page; it is an embodiment of our values.”– Barack Obama.

That statement is spot-on when it comes to the how, why, and who of how you’ll manage your business. Your values can be directly erected from the ways you spend, allocate and even donate money to fuel your business growth. Just think, as your business matures, it has an impact on not only yourself but your clients, your employees and their families, and the greater world and supply chain it influences. Undoubtedly, how you manage your business finances will cause waves out in the world, beyond simply paying your own bills.

If you own or seek to own a business, you’ll need a business budget. Read on to learn more about how to effectively develop your business financial plan.

What Is A Business Budget?

In the simplest terms, a business budget is a spending plan for your business based on your income and expenses. It identifies your available capital, estimates your spending, and helps you predict revenue.

In order to identify your business budget, you need to brainstorm what your fixed cost and variable costs might be in any given month. For example, a fixed costs could be anything related to consistent and constant business expenditures, think:

  • Office rental space (if applicable)
  • Insurance
  • Monthly subscriptions to software that help you run your business
  • Yearly tax preparation costs
  • Loan repayments (if applicable)
  • Payroll
  • Marketing/Advertising costs
  • Employee benefits programs
  • Legal Fees 

And the list of business expenses can go on and on, especially as your business gains traction in revenue.

A variable business expense may include anything from material costs, utilities like gas (as we’re seeing now), production supplies, or even payroll as you lose or gain employees.

It’s important to note new business entrepreneurs won’t have a budget blueprint to work from. In that case, try to map out your business budget expenses for each month and build that out into a six-12-month timeframe.

Once you get a year of revenue under your belt, you’ll be able to project for revenue outcomes and forecasting moving forward.

What Are The Benefits for Business Financial Planning?

The benefits to creating a business financial strategy or a business budget are simple; you need a well thought out plan in order to run a healthy and sustainable business. Currently, there are nearly 33 million small businesses in the U.S. of which, nearly 20% are women owned and only 2.2% are Black owned businesses.  Creating a solid financial plan early on in your business is crucial to your businesses success and overall growth.

Additionally, creating a business budget will help you to stay on top of the needs of your business, the needs of your employees (if you have them), and give you peace of mind as you make purchases, pay bills, and endure the expenditures that come with being a small business owner.

 

How to Prepare Your Business Financials and Create A Business Budget

Creating a business budget doesn’t have to be complicated. In fact, you can follow a fairly simple formula in order to do so. You may also consider developing a business expense spreadsheet to keep you as organized as possible.

First, you’re going to want to calculate your total expenditures, remember that includes both your fixed cost and variable cost expenditures during any given month. Then, you’re going to want to track your business income. Finally, you’ll need to subtract cost expenditures from income to get your total net income. That looks something like this:

Total Income – Total Expenses = Total Net Income.

Don’t forget to keep in mind and adjust for taxes. Typically, taxes account for 30% of your overall Total Net Income. You may even want to create a separate account to hold those funds for when it’s time to pay taxes.

Another quick option to consider, depending on where you are in your business journey, is either investing in budgeting software to help automate the process and save you time or employing a budgeting/financial planner to do the work for you. Both options take the responsibility of managing your business budget off your plate so you can focus on what you know best; the product, idea, or solution you’re selling.

When you’re just starting out, it’s necessary to set aside the time to develop a business budget as part of your business plan. The information you’ll formulate is indispensable to the success of your company and being able to develop a financial roadmap will help to keep you on track for success. It’s also important to reassess your small business budget and financial plan as you gather more data about your income and losses over months and years.

Many small business owners overlook this simple but critical step when building out their business plans. Don’t find yourself unprepared and unknowing of your business’s needs when it comes time to calculate your expenses, income, or even taxes.

For more information on creating a business budget or if you have additional financial questions, reach out to us at info@joinguava.com