Creating A Business Budget is very similar to creating a personal budget. However there are some differences. One of the most important aspects that you must understand when you own a business is that taxes are not directly taken out of your income, which makes your income and any quarterly tax payments extra important to track. Tracking and knowing your Income & Expenses timely will assist you in determining your estimated quarterly tax payments (if applicable) and in the development of your Business Budget (spending plan).
Developing and having an accurate and realistic budget will assist you in making accurate spending decisions and make it easier to predict profits. Which means the more frequently you track your costs, the better! Having a Business Budget will assist you in knowing and understanding where your business is going.
Here are 5 recommended steps for creating your Business Budget:
- Step 1: Determine how frequently you want to track your costs and income. Generally, it is advisable to choose every week or every month. At first it may seem like a time-consuming task to track and enter your spending every week, but it will pay off in the long run and as you become accustomed to it, you’ll find that it really only takes you a few minutes every week. Establishing a simple systemusing spreadsheets to track your cost and income usually makes it easier to update daily or weekly.
- Step 2: Determine your expenses. This means your operating costs like your phone and web hosting fees, the costs of your taxes, the costs of outsourcing and the costs for marketing, publicity and so on. Best way is to make a list of all categories you anticipate having costs and all areas where you already know your expenses and include these in your budget.
- Step 3: Now the fun stuff! You get to predict your income. The best bet is to predict on the conservative side. That way if you have a bad month, your budget is not blown; however, when you have a good month, and you will have many good months, you will have extra money to work with.
- Step 4: Track your expenses and income and review your budget often. To get the most out of a budget plan, you will need to track all your business expenses and income. Remember, your budget is not set in stone. It is a living breathing thing that will change as your business changes. If you find you have spent more in one category, analyze and make adjustments in your budget (moving money from an expense that is at lot lower than you budgeted to the expense that is over budget). A business budget is not a strict regimen or diet, it is a spending plan.
- Step 5: Track the difference between what you do spend (actual) in each category and what you planned (budgeted) on spending. Realize that in the beginning, it is likely that you’ll have more expenses than income. This is normal for most start up businesses. This will help you predict the future and allow you to keep your budget realistic and accurate.