Running a successful small business is difficult. More than 50% of the businesses will fail in the first year. About 95% of all small businesses fail in the first five years.
These are daunting statistics especially if you don’t have a balanced budget. Ensure the survival of your business by following these different ways to balance your books.
What Is a Budget?
A budget is going to guide your expenses for the entire fiscal year. Budgets are an estimation of what you think the business will make or spend for a given period of time.
If you’ve never created a budget before, review your expenditures and revenue from previous years. This will help you set a good base.
During your budget creation, look for patterns and events that reoccur. This information can help you account for irregularities.
1. Factor Your Revenue Streams
Count all the ways your business makes or could make money. If you haven’t been keeping detailed numbers, take your annual revenue, and divide it by 12 to get a rough monthly estimate.
The monthly income number is extremely useful to guide you on a seasonal or short-term basis. If you sell products that could be good Christmas gifts, your November and December months are probably much higher than the summer months.
2. Fixed Costs
To properly run operations, you have to spend money in some form. Salaries, debt, office lease, supplies, and fees are just a few examples of fixed costs you need to account for.
You need to know all costs of operations that don’t change regardless of sales or trends.
Subtract your fixed costs from your total revenue to start getting closer to a profit (or loss) number. Revisit your numbers immediately if you have a negative number after subtracting the fixed costs.
3. Variable Costs
Costs that fluctuate or change from time to time are called variable costs. These expenditures include the following:
- Office supplies
- Cost of goods sold
Make sure to go over all variable costs and eliminate frivolous spending. Avoid mixing personal expenses with business.
If you discover a personal item like a timeshare, make sure you remove it from your budget for the upcoming year. When timeshare becomes a financial burden, you need to consider timeshare cancellation. Wesley Financial Group is amazing company that can help you exit your timeshare safely.
4. Create Space
Disasters, calamity, and emergencies can strike at any moment. Do you have enough backup funds to help you get through a tough stretch?
Create space in your budget to put aside money for any interruption or slow period of business. Whether you’re dealing with a pandemic or trend change, have the money to make a pivot or weather a storm.
There’s no set amount to put aside, but building up to having a fiscal year’s worth of expenses is a great goal in the event of a terrible year.
5. Profit & Loss
Some people are intimidated by profit & loss statements – or P&Ls. But it’s quite simple to calculate.
Take your total revenue and subtract all costs from that number. The difference is your profit or loss. If you’ve made money, your profit is called the “black”. If you’ve lost money, then your losses are called the “red”.
Having a loss isn’t the worst thing. Sometimes you have to make investments and take losses for a bigger payout down the road.
6. Moving Your Business Forward
After you have a profit & loss statement, you can ensure the budget stays balanced. As an owner, there are a lot of responsibilities that need attention. Hire an accountant to help track and monitor all costs and revenues.
Constantly review the expenditures with the accountant. It’ll be your duty to set the budget every year.
Balanced Budget for Success
While companies and businesses are struggling, be the owner who is setup for success with a balanced budget. Knowing the numbers means knowing the problems and how to solve them.
Entrepreneurs and new business owners need all the help they can get. Learn more about running a successful organization by reading the rest of our blog.