When you're starting a new business, budgeting is one of the most important things you can do to ensure your success. It can be tricky, though, to know where to start and what to include in your budget. That's why we're here to help!
Below are some tips on how to start budgeting for your new business. We recommend contacting one of our professionals for more specific guidance and assistance. But before you do that, make sure you have a well-defined business plan in place. This will be key in setting up achievable goals and ensuring that your budget is on track.
Define Your Business Goals
Your first step is to figure out your business goals. What do you want your business to achieve? How much profit do you want to make each year? What are your long-term and short-term goals?
It's important to have a solid understanding of what you want for your business before moving on to the next steps. This will help you make more informed decisions when it comes time to start budgeting.
Know Your Operating Expenses
In order to budget effectively, you need to have a clear understanding of your business' operating expenses. What are the regular costs associated with running your business? This could include anything from rent or mortgage payments to employee salaries, marketing and branding costs, and inventory.
Track these expenses each month, so you have a realistic idea of how much money you need to bring in each month to stay afloat. This is where forecasting can be helpful; by projecting your sales for the upcoming year, you can get a better idea of how much money you'll need to budget for on a monthly basis.
Don't forget to factor in unexpected costs as well. Unexpected expenses can arise at any time, so it's important to have a cushion in your budget to account for them.
Create a Sales Forecast
How do you know how much money you'll need to budget for your business each month? One way to start is by creating a sales forecast. This will help you estimate how much income your business will bring in each month.
There are a few ways to create a sales forecast. One is to look at your past sales data and project that onto the future. Another is to use market research to estimate how much sales will grow or decline in your industry. Whichever method you choose, make sure you're realistic in your forecasts. Trying to project too high or too low can lead to budgeting mistakes down the road.
Once you have a monthly sales forecast, use that information to create your budget. Make sure your expenses don't exceed your income and be prepared for fluctuations in your business' income throughout the year.
Determine Your Break-Even Point
Your break-even point is how much revenue you need to bring in to cover all of your expenses, it's the point where your business is neither making a profit nor a loss.
To find your break-even point, you'll need to calculate all of your fixed costs (like rent, insurance, and salaries) and your variable costs (like materials and shipping). Once you have those numbers, divide your total fixed costs by your total revenue, and that will give you your break-even point.
For example, let's say your total fixed costs are $10,000 and your total revenue is $30,000. That means your break-even point would be $10,000/$30,000, or 33%.
Once you know your break-even point, you can start thinking about how to increase your revenue so that you can start making a profit.
Set Up a System to Track Progress
You need to track your progress to ensure you are sticking to your budget and on track to hit your goals. This can be done in a number of ways, but I recommend using software like QuickBooks or Mint.
Both QuickBooks and Mint are great for tracking expenses, income, and creating budgets. They also have features that allow you to track your progress over time, which can be extremely helpful when budgeting for your business.
I also recommend using a spreadsheet or notebook to track your progress. This can be a simple way to keep track of your budget and ensure you are sticking to it. No matter what method you use, make sure you are tracking your progress so you can adjust as needed.
Review and Adjust Regularly
Your business budget isn't set in stone. You should review it at least quarterly and make adjustments as needed. If you find that you're consistently coming in under budget in one area, you can use that money to fund another area of your business that may need it.
And if you find that you're consistently overspending in one area, take a close look at what's causing that and see if there are any changes you can make to get things back on track.
It's also important to keep an eye on changes in the market, as they can impact your business budget. For example, if the cost of raw materials goes up, that may mean you need to adjust your prices to cover the additional expense.
By regularly reviewing and adjusting your budget, you can ensure that your business is on track for long-term success.
So, to sum it all up, if you're thinking about starting a business, the most important thing you can do from a budgeting standpoint is to have a clear and concise business plan. This will help you and your financial advisor understand what your goals are and how to best allocate your resources.
Once you have a plan in place, you can start thinking about the other budgeting basics, like setting up a business bank account and tracking your expenses. By following these simple steps, you'll be on your way to budgeting for success.