Creating a business budget that you can stick to is essential to keeping your business accountable and organized. By setting clear financial goals for yourself, it helps you track how much money you're making and spending. A good budget helps you measure your success, stay accountable, make better decisions, and manage risk.
But what if your budget isn't working? Maybe it's telling you that your business isn't profitable enough. Or maybe it's telling you that sales are falling short of expectations. In either case, we're here to help you create an updated and improved budget that will keep your business accountable, and help ensure it stays afloat for years to come!
What is a business budget?
A business budget is a plan for allocating funds that tracks expenses and compares them to revenue. It provides insight into where you're spending money, which allows you to make informed decisions about how much new costs need to be incorporated into your total spending plan before the end of the month (or quarter).
A successful business uses its budget as a way of measuring progress toward its goals. You'll know if you're on track or off course when comparing this information with last year's data—and there's nothing more motivating than seeing concrete results from a plan! A good budget helps keep everyone involved accountable when it comes down to making tough choices about which resources should get limited attention versus others during peak seasons in particular areas.
With Club Capital's CFO Services, all of your financial information is available at a glance, so it's easy for you to see how close you are to hitting your targets or if there are any gaps in your budget.
5 Easy Steps to Make A Good Business Budget
1. Draft a budget based on last year's actual expenses
The first step in creating a budget is to look at the historical data that is available. If you haven't been operating your business for very long, this may be as simple as looking at last year's expenses and figuring out how much money you spent during that period.
But what if you've been running your business for years? Do you use last year's numbers as is? No, you need to create an updated version of last year's budget using all of the new information about costs, revenue, etc., that are relevant to this year.
Look at all the expenses you had last year, including:
- known business expenses, like marketing and product development costs
- personal spending that is relevant to your business (like travel for work), but exclude any that are not (like a new couch)
- Include all relevant expenses for the coming year, even if they're unlikely to occur again (such as travel for a trade show). If there's an expense in your historical data set that may not repeat itself this year, include it with an asterisk next to it so you can easily track it.
Don't include items you don't have or anticipate having in the coming year — those can be added later in the budgeting process after they become known and/or feasible.
2. Include all known business expenses
When creating your business budget, it's critical that you include all known expenses. This includes things like taxes, insurance and other expenses that are a fixed part of your business. It also includes profit margins, which will allow you to determine whether certain areas are profitable or unprofitable. It's important to keep in mind that some expenses may change from time-to-time; for example, if you work at home and have a fixed cost for rent but sometimes need to pay extra for utilities
That said, when estimating costs (and profit margins) don't forget that unexpected expenses may arise during a given year. If possible try to allocate extra funds in case of these unknowns so there will be no surprises later on.
3. Separate fixed and variable costs
Now that you have a good idea of your day-to-day expenses, it's time to separate out the fixed and variable costs.
Fixed costs do not change with business volume. These are things like rent, insurance premiums, utilities (gas/electricity/water), etc.
Variable costs are those that change with business volume. Variable costs include things like labor (employee wages), cost per unit sold, and other expenses associated with each product or service sold.
4. Build your budget based on projected revenue
When you're building your budget, it's important to know how much money you expect to make in the next 12 months. To do this, you'll need to take into account a few factors:
- Your current projections for sales and revenue
- Your current projections on expenses (based on past trends)
- How much money you want or need to make each month
5. Set reasonable goals for your business budget
As you set goals for your business budget, keep these things in mind:
- Set goals that are achievable. You don't want to set a goal that's not realistic or possible.
- Set goals that are realistic for your business at this time. You don't want to set a goal that doesn't make sense given the current state of your finances or resources — so think about how much money or time is available before setting any financial targets.
- Set goals that are flexible. Set goals based on what's possible today while also being able to adapt as circumstances change over time. This means breaking down large annual goals into smaller monthly ones so they're more manageable — if one aspect fails in terms of achieving its quarterly target then some other part may still succeed, which will help keep momentum moving forward.
Creating a business budget is essential to keeping your business accountable and organized. It’s also helpful to know how to create a budget that will help you achieve your goals, make better financial decisions, and stay organized.
By following these steps, you can create one that works for your company and stick with it.
Club Capital Is Here To Help
At Club Capital, we've got your back. We're not just accountants—we're small business owners too, and we know how tough it can be to stay on top of your company's finances when you're also trying to grow your business.
We want to make sure that your books are in good hands and that you have everything you need to know about the financial health of your company.
For the past 5 years, Club Capital has helped insurance agents better manage their agency's finances through best-in-class monthly accounting, CFO, and tax services. Schedule a demo today!