Creating a budget plan for a small business involves analyzing your revenue and costs, making projections, and preparing for future expenses. This helps ensure the business can survive slow seasons and prepare for unexpected costs. By following a structured approach, you can create a realistic and effective budget that supports your business goals.
TLDR
Calculate your revenue.
Add up your fixed costs.
Determine variable costs.
Subtract your fixed and variable costs from your revenue.
Prepare for unexpected costs.
Create a profit and loss statement.
Step-by-Step Detailed Guide
1. Calculate Your Revenue
Include all your revenue streams to determine your monthly income.
Preferably use data from the last 12 months for more accurate calculations.
If your business is new, research typical revenue in your industry for estimates.
2. Add Up Your Fixed Costs
Fixed costs include rent, payroll, and debt repayment.
These are expenses that remain constant regardless of business activity.
3. Determine Variable Costs
Variable costs can include utilities, billable labor, materials, transaction fees, and commissions.
These costs can fluctuate based on the level of business activity.
4. Subtract Your Fixed and Variable Costs from Your Revenue
This helps determine the net income, which is the amount remaining after covering all expenses.
Net income is available for reinvestment in the business.
5. Prepare for Unexpected Costs
Set aside a just-in-case fund for unexpected expenses, such as equipment replacements.
This helps ensure that unexpected costs do not disrupt business operations.
6. Create a Profit and Loss Statement
Add up all your income and expenses for the month.
Subtract the expenses from the income to determine profit or loss.
Aim for a positive result indicating a profit. A negative result indicates a loss.
7. Use Budgeting Tools and Templates
Utilize online budgeting templates and software like QuickBooks® for easier budget creation.
Templates simplify the process by providing a structured format to follow.
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