If your goal in 2019 is to maximise productivity, generate profits and expand your business operations, your first step is to create a small business budget. This will allow you to assess key business financials and put a plan in place to boost your future revenue stream.
How to create a business budget
Setting up a budget doesn’t require specialised skills or anything more than the most rudimentary knowledge of accounting. Your aim is to forecast future business finances, based on past performance, so that you can make strategic business decisions going forward.
Here’s a step-by-step guide on how to set up a small business budget.
1. Calculate your monthly income
Your first step is to determine your income – the money that flows into your business from various revenue streams, such as sales, investments and equipment rental.
Ideally, you want to calculate your monthly income over a period of 12 months, using data from the previous year. This will allow you to identify revenue patterns, such as seasonal dips and spikes, and plan in advance for the lean times.
To arrive at a viable figure, you have to take into account recurring income that’s reliable, and happens on a month-to-month basis. You also have to factor in expected income, the revenue you think the business is likely to earn in the future.
2. Calculate your business expenses
Your second step is to add up all your business expenses. These can be:
- recurring costs, like staff salaries, insurance, taxes and utility and rental bills, and
- sundry expenses, such as office supplies, advertising, printing costs and equipment or software upgrades.
At this point, it’s a good idea to budget for those unexpected expenses. Above inflation office rental increases, equipment failures, and flood or fire damage to inventory, machinery or real estate are examples of these kinds of costs.
3. Determine profit or loss
Your third step is to subtract your monthly expenses from your income. If you’re left with a positive balance, your business is making a profit. If not, you’re running at a loss, and you’ll either have to cut costs, or find a way to increase your businesses revenue streams.
Notwithstanding whether your business is showing a profit or a loss, your goal for 2019 is to enhance revenue. As such, we’ve provided a few budgeting tips that’ll help you improve your profit margins.
- Evaluate your suppliers at least once a year. If you’re happy with the existing business relationship, try and negotiate better rates. If not, get quotes from competing companies, and take your business elsewhere.
- Analyse your team by delving into the efficiency and productivity of the people who work for you. If you’re not getting the best return on your investment, show the slackers the door.
- Assess the gross margins of each client, product or revenue stream, and focus your time and efforts on the one that grosses the most.
- Ensure that every business expense has a profit-driven purpose. If you can’t justify spending money on an item, it’s an unnecessary expense, and should be cut from the budget.
- Opt on the conservative side when forecasting future earnings, and always overestimate business expenses. It’ll help your business cope with those unexpected expenses that have not been included in the budget.
- Cut your business expenses by downscaling to a shared office or coworking space. You’ll not only benefit from low-cost month-to-month rental rates, you’ll more than halve your fixed costs, as all the utilities and business support services are included in the rate.
At The Workspace, we don’t offer expert budgeting or business advice. However, we do support small businesses by offering affordable, fully serviced offices and coworking – and all our clients have access to meeting rooms, boardrooms and a range of business services. For more information or to book a tour of one of our branches, call us on 0861 250 259 or contact us online.