Budgeting for a business is no easy feat. It’s something you’ll have to do time and time again as a small business owner, thanks to the changing landscape of your own market and the global economy. After all, what kept you in the green one month may tip you over into the red the next!
So, how can you be effective when it comes to your company finances? Well, this is the best way to be responsible as an entrepreneur stepping out into the business world. But when it comes to effective budgeting, what does it really take?
Understanding Your Fixed and Variable Costs
A fixed cost is something you’ll be paying all the time, on a loop, rarely changing. A variable cost is something you’ll only pay from time to time, and at different prices when you do. Knowing the difference will save you a lot of headaches here! Note down your monthly expenses, or what you think they will be, and then create a separate column for expenses you’ll only pay once in a while. This will help you keep up with the way your profit line can change, as you’ll be aware of what you’ll always be paying, and what months you’ll have more wiggle room in.
Learn Your Tax Obligations Quickly
The taxes you’ll need to pay once your first financial year is through may come as a shock. Now these can vary depending on the kind of company you run, so it’s hard to give a detailed rundown here. It’s why it’s so imperative to do your own research and talk to accounting professionals when you can. Indeed, opening up a non-profit will need you to know your 990 filing requirements, but trading as a limited partnership or as a sole trader is a whole different story!
What Do You Plan to Make?
Now it’s time to discuss your profit, a.k.a., the more fun part of the exercise! So, what do you plan to make each month, or annually? What are you selling, what are you selling at, and how much do you think you will sell? Get an estimate on these numbers as soon as you can, otherwise your budget sheet will be pretty unbalanced!
Work Out What to Do with Spare Cash
Spare cash will come your way from time to time. Sometimes you’ll notice the profit is a little higher than usual and all your costs are covered; what a wonderful turn of events! But spare cash is not for splurging with. It’s a good thing to try and save and/or invest, to ensure your company always has some funding behind it and an exponential chance at growth. All in all, spare cash is an irregular treat and should be prized, so whatever it is you’re trying to do with your company, allocate it out equally.
Effective budgeting is careful yet flexible, precise but without being stuffy. Use tips like these to help you plan.
