TO #1 How to set up and maintain a budget for my business?
A simple way to start working on your budget is to list all your fixed expenses incurred by your business. You will have these costs no matter your business strategy or period. In this category, you may want to include things like salaries, rent, utilities. Take your time here and make sure you add everything – use a budget from last year or a bank statement to check all your cash outflows.
Go on and add your next expected income. Use your average sales number from last year and don’t forget to include your current payment promises (invoices, signed contracts). Organise your income on categories of products or services and set your growth goals for the next period.
You are able to check now if your next expected inflows cover your fixed costs. If the difference is very small, then there’s a big chance that you’ll encounter some financial troubles in the future. A potential solution to this is to look for an external source of income or to replace some of your fixed costs with variable ones, if possible.
As we’re talking about this, it’s time now to have a look at your variable expenses. Organise them on a category structure of your choice so you have a better grasp of your main outflows. In this budget section, you have more space to play around with. For example, you may choose to move some of your variable expenses from a rainy month (low level of income) to a more prosperous one. Or you may decide to postpone the acquisition of an important piece of equipment if it’s not of utmost importance for your commercial activity.
If this is the first budget you’re building, try to spend enough time to list all your expenses, from both your activity history and planned. Giving the fact that you do not have a model to follow, it’s truly important to not forget anything here.
After your data consolidation is ready, check the net result for each month. Compare it with the same period from the previous year and see if and how it fluctuated. If your current goal is to increase the profitability rate, then you may want to increase the number of planned sales or reduce the spendings.
Rearrange your category structure and build different business scenarios. What can happen (financially speaking) if you hire another colleague at the end of the summer? But if you lose an important client?
And try to always have an amount of money set aside for critical situations. Even though the meaning of your budget is to get a clearer perspective of the future, you cannot foresee everything. There has to be a little bit of magic in everything. ✨
I have my budget in place. Now what?
Make sure you review it at least once a month and compare it with your business reality. Depending on your actual cash flow, you may want to adjust the next budgeted amounts in order to be consistent with your current financial position.
Try to comply with your plan as much as you can in order to avoid any financial crisis which may affect your operations.
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- Use your (bank) transaction history to calculate your budget estimations
- Organise everything on your customised inflows and outflows categories
- Check your monthly expected results
- Keep track of your actuals vs. estimates over time
- Easily edit your budget and understand how money moves your business
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