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Creating a Budget for Your Business: Here’s What to Do

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Author: Bob Press (TAP Financial Partners)

Having a budget will help you in every aspect of your business, from knowing when to hire new employees to determining whether you can actually afford that fancy espresso machine for the break room.

It’s easier to create a budget when you’ve been in business awhile. However, if you’re just starting, you can still make a budget using estimates based on the market. Here are the three steps to take:

Calculate revenue

Keep in mind, revenue is not the same as profit. Revenue accounts for all the income that has come into your business, while profit is the money that’s left after you deduct expenses from revenue.

Calculate your revenue for as many months as possible, up to the last 12 months. In addition to knowing your annual revenue, you’ll want to know how much money comes into the business each month and for what. Then, you can start to look for trends as far as which months and products/services bring in more or less revenue.

Determine expenses

Next, you need to know how much money you’re spending every month. Calculate everything you pay for regularly, including rent, utilities, payroll, software

subscriptions, taxes, insurance, and loan repayment. These are fixed expenses.

You also pay for several things throughout the year that aren’t fixed costs. Examples include marketing, owner’s salary, professional development courses, conferences, and office supplies. Add up these costs to see what you spent over the last year. Then subtract all your expenses from your revenue to determine your profit.

Plan for the future

Use the information from above to do future planning. Did you end up with a profit, or were you in the red? What seasonal trends can you identify and prepare for in the upcoming year? Where can you cut spending? Are there any significant expenses you know you’ll have?

Ideally, you’ll create an annual budget that outlines how much money you plan to earn and spend each month. Then, at the end of each month, go back and see how your actual earning and spending lined up with your expectation. A budget isn’t set in stone, so you can make adjustments as things change.

We know creating a budget for your small business can be intimidating. Fortunately, with a bit of planning, you can be well on your way to developing a budget that will help you identify the best ways to grow your company.

If you need guidance with your business finances, TAP Financial Partners is here to help. Give us a call today to learn more about our services.

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