4 Steps To Creating A Budget
Dreams and big ideas are what bring progress to our world. Dreams are what great achievements and giant leaps for humanity begin as. If it weren’t for dreamers we wouldn’t be driving around every day in metal cans at 85 mph (yes, we all know speed limits are suggestions.) and humanity would have never reached the moon or cured small-pox. Regardless of how fantastic your goals are or how mind-blowing your idea is, without a plan of action and the funds to make it happen, your hard work could collapse quickly. Poor money management has claimed many companies that the world thought were invincible. Enron, Toys R Us, Blockbuster, Kmart, and Comet all failed because of poor management- either from unpaid taxes, poor cash flow management or subpar money management in general.
It is incredibly important to know where your money is coming from and where it is going. Unfortunately it is a step that many start up’s skip right over, out of eagerness to get to work or from laziness. Either way, poor budgeting is actually the downfall of over 80% of businesses each year. Plans can fail and mistakes happen. In fact, 1 in 4 entrepreneurs fail at least once before they achieve success. That is expected, but don’t let your dreams fall apart from such a foolish mistake as not creating a budget.
- Add up your income-
Depending on the type of company you own and your business model, you may have one or many sources of income. For example, a professional musician may be bringing in money from recording sessions, gigs and/or sales royalties. The average traditional retailer may only have one- i.e. sales. However you make your money, the first step to creating a good budget is determining your sources of income and figuring out how much you are bringing in each month.
- Determine fixed and variable costs-
Let’s face it, this is the part we don’t like to talk about. Incurring expenses, spending money on investments and paying bills for day to day operations should actually be encouraging though. You are doing it! You are spending money to make your business grow! Knowing where your money is going, however, a necessary part of setting yourself up for success. To do this, refer to your freshbooks, quickbooks or good old bank statements and add up all of the debits from your account each month. It is also important to factor in variable costs. One basic example of a variable expense would be your electric bill. Depending on your usage each month you will pay a certain amount. We suggest finding the highest bill and using that to calculate in your budget.
- Set aside funds for emergencies and unexpected costs-
The tides always turn, equipment breaks, and emergencies happen. Setting aside a certain amount each month into a reserve to handle such events could be the only thing keeping your ship from sinking in difficult times. Seasonal ebbs and flows in business should also be accounted for. For example, construction companies tend to experience a drop in business around the holidays but a spike in warmer months. Retailers experience a massive rush of sales during the holidays but the surge tends to slow soon after the new year. If you plan accordingly then these seasonal trends wont negatively affect the health of your company. Great advice from Ptmoney.com is that, “Most experts agree that you need at least $1000 in an emergency fund to start, but you should aim for 3-6 months worth of expenses. Once you have a cushion of cash to insulate you from life’s expensive difficulties, you’ll be able to focus on keeping your monthly budget in order.”
- Calculate your estimated profit (or loss)-
After you have added up assets, income, loans and expenses you can calculate your estimated profit or loss. With this information you will be more prepared to make smart decisions and spending goals for your business. Although it’s not what anyone wants to see, Entrepreneur estimates that businesses making a new product take at least three years on average to become profitable. Getting started requires a lot of investing to become a strong enough company to be successful.
While it is something that many dreamers dread to deal with, a solid budget should actually be freeing, instead of a chain that keeps your funds locked up tight. When you plan correctly you can see exactly what next steps you can afford to make. At Omnis, we can help with all of your accounting, budgeting and bookkeeping needs. Many small business owners are outsourcing their bookkeeping because it’s more cost-efficient than an in-house hire and more time-efficient than trying to do it themselves. Our remote services are completely flexible, meaning you can hire us for as much or as little time as you need. Contact us today to get started on the journey to getting your dream job back and let us handle the rest!