You've just purchased or opened a small business and you know your trade, but when it comes to bookkeeping and, more specifically, budgeting, your skill set is lacking. It's OK - the good news is that it is possible to come up with a budget, or at least a good estimation of what will be needed in terms of dollars and cents. Read on for six simple tips that will help you put together a top-notch small business budget.(To read about large corporations' budgets, check out How Budgeting Works For Companies.)
Why Budgeting Is Important
Estimating and matching expenses to revenue (real or anticipated) is important because it helps small business owners to determine whether they have enough money to fund operations, expand the business and generate income for themselves. Without a budget or a plan, a business runs the risk of spending more money than it is taking in or, conversely, not spending enough money to grow the business and compete. (If you haven't set up your own personal budget yet, read The Beauty Of Budgeting and our Budgeting 101 special feature.)
Budgeting Techniques
Every business owner tends to have a slightly different process, situation, or way of budgeting. However, there are some parameters found in nearly every budget that you can easily employ. For example, many business owners must make rent or mortgage payments. They also have utility bills, payroll expenses, cost of goods sold expenses (raw materials), interest and tax payments. The point is that every business owner should consider these items and any other costs specifically associated with his or her business when setting up shop or when taking over an existing business. (For related reading on owning a business, see Why Owners Sell A Business and Is Buying A Franchise Wise?)
What To Do with Revenue
With a business that is already up and running, you can make assumptions of future revenue based on recent trends in the business. If the business is a startup, you'll have to make assumptions based on your geographic area, hours of operation and by researching other local businesses. Small business owners can often get a sense of what to expect by visiting other local businesses that are for sale and asking questions about weekly revenue and traffic patterns.
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