The size of a business doesn’t matter - a well-managed budget is vital to success. If you can learn to prioritise, budget by department and plan ahead, then you’re on the right track. Here’s how to manage a budget to ensure you consistently make a profit and manage other expenses.
- Create Your Budget
- Start Planning Ahead
- Budget by Department
- Learn to Prioritise
- Think About Your Staff
- Always Prepare for the Worst
Planning and creating your business’ budget should be the cornerstone of the budgeting process. This step is vital as it can ensure long-term success for your business so you can see past next week, next month, next year and so on. Here are some critical steps to take when creating your budget:
- Examine your revenue: Add all of your business’ income sources together to discover what money comes in every month. Combine them and calculate your monthly income. Try and do this for the last 12 months after deducted expenses for an accurate figure.
- Subtract fixed costs: Add up all of the expenses that are necessary on a regular basis to keep your business operating. These include charges such as rent, supplies, payroll, insurances and more. Try to get as much data as you can so you can subtract the figure from your income.
- Determine variable expenses: You might notice that there are some variable expenses within your business, so note them down as well. These can change depending on how much you use the service, such as utilities, office supplies, equipment and more.
- Create a contingency fund: Costs can arise when you least expect them. Use this stage to prevent the fear of unexpected costs. Having some extra cash on hand and plan for contingencies within your budget means you’re prepared for an emergency.
- Create your P&L: Put all this information in your profit and loss statement. So add up all of your income and expenses, subtract the costs from the income, and you should, hopefully, get a positive number at the end. This figure will help you make some tweaks to your budget if necessary.
- Outline your budget: Now that you’ve got your P&L, it’s time to create your budget. Reference the P&L where necessary so you understand seasonal ups and downs and other trends that can affect your budget. To make budgeting simpler, use templates so you can track income and expenses.
When you plan your budget each year, it’s easier if you’ve done forward planning. Look through your business’ calendar for the entire year to find out which months could be expensive and where you can save money.
Be sure to account for both small and large expenses, whether it’s office supplies or a significant renovation. They can add up to more than you might expect, plus it’s crucial to be accurate as you can and not over or underestimate. If you avoid rounding up or down, you won’t cut any corners and you won’t run out of money. It’s the best way to avoid any financial surprises.
You might only have a handful of departments in your business right now, but it’s just as essential to make sure each department receives the same level of focus. Again, look back at the previous year to see what the income and expenses were and use the figures to allocate each department’s budget for the coming year.
Analyse where you have leftover budget, which department needed more money than expected and did any require you to dip into other funds? This should give you a clearer idea as to how much budget each department requires. Any guesswork could leave some departments short. Taking the time budget by department will keep everything moving seamlessly.
It’s easy to assume that everything in your business is vital all-year-round. However, when you look over the past year or even further back, you may spot trends that certain months or seasons are slower than others. For example, you might notice that your business performs better financially in summer than it does in winter.
If you learn to prioritise during any slower months or seasons, then you can avoid spending the rest of your year making up for potential financial losses. Therefore it’s important to know the levels of priority for each investment or purchase.
If there’s something you want to purchase for your business, ask if it will improve processes, make your staff more efficient or even make you a profit. If the answer is yes, then it could be a higher priority than something which is a nice-to-have rather than a must-have.
While you’re busy making sure that your business is satisfying clients and customers, it’s also crucial that your employees enjoy working for your business. That doesn’t mean you need to hand out bonuses all the time. While actions like these can feel rewarding and motivate staff members, there are other inexpensive ways to help them feel valued.
This can mean setting aside a budget for parties, socialising, team-building activities or even birthday cards. You should always account for this when creating your budget each year, so you don’t get caught out. Plus, the staff will know how valuable the budget is and they’ll be more appreciative.
It can be a business and financial nightmare to realise that you need a large sum of money that your business hasn’t prepared for - especially if there are still many months remaining until the end of the year. This can be anything from needing emergency equipment to replacing an employee, so it’s always a good idea to have some emergency funds that your business can rely on.
If you prepare for the worst or unexpected costs, then it won’t impact your budget for the rest of the year. For example, if you operate on a month-by-month budget and there’s an issue in the first quarter of the year, you won’t need to dip into the budget you’ve set out for the other three quarters.
Instead, you’d have an emergency fund you have created for potential situations like these.
Creating a budget for your business and managing it doesn’t need to be a complicated or overwhelming process. Although the tips and advice above will help you, we’ve also created some helpful templates to help with budgeting so that you stay prepared for the entire financial year.
Start Managing Your Budget Effectively With Your Very Own Templates
When managing a budget, quite often the most challenging aspect is tracking everything. If you want a simpler way to budget effectively, then we’ve got a bunch of templates that you’ll find useful.
Get your free template now using the link below.