How to Create a Business Budget

Creating a budget for the operation of a new business is tricky, tedious and time-consuming, but vitally important. A prospective business owner must study the situation from every possible angle and project costs related to beginning and maintaining a business.

The old adage, “It takes money to make money,” is not just a slam on the rich, it is absolutely true. Any person planning to start a business must have capital to work with. Leaning on credit to begin or maintain any enterprise will most likely lead to that company’s downfall. Credit is good when used sparingly and when necessary but any business that exists on credit really does not belong to the owner, it belongs to the financing agent.Start-up costs can be substantial. Initial costs will consist of the purchase of equipment and supplies, the costs of permits or licenses, the costs of setting up an office or retail establishment, deposits for rent and utilities and the costs for insurance. Inventory must be established depending on what is to be sold and how it is to be sold. One major cost that is often underfunded is marketing. Advertising the goods or services that will be offered, reaching the right clientele and getting the business name out to the public are critical steps in starting a business and maintaining a steady flow of revenue.

Fixed costs are expenses you will have whether sales are up or down. Such costs are rent and maintenance fees, utility and phone bills as well as insurance and salaries.

Variable costs, cost of goods sold, are basically the expenses necessary to make available the goods or services being marketed. This would include replenishing, adding to or updating inventory.

The first step in creating a viable budget is to gather financial information. This information will consist of working capital, projected costs and projected income. When combined, these figures will reflect the profit that is anticipated. The most difficult figures to create are projected Sales. Much guesswork is needed at this point. By reviewing several different scenarios reflecting several different possibilities, a workable figure can be generated.

If a specific financial computer program is to be used in the business, purchase it, load it and use it. Most programs will provide a basic budget format that can be used as a guide. Remember that no two businesses are alike, so change the format however necessary in order for the final document to make sense for the particular business.

If no basic budget format is available, simply set the information up in a spreadsheet. Input the line-item figures you agree can best reflect the proposed business allowing for several columns of information. The first column heading would be “Account Name,” while the last columns would reflect the fiscal data divided into months or at least quarters.

The first section would be titled “Income,” in which would be included the following line items:
1. Beginning Inventory
2. Less Projected Sales
3. Add Purchases
4. Less Ending Inventory
Total – Gross Profit

The next section would be title “Expenses,” in which would be included the following line items:

1. Salaries
2. Utilities
3. Rent
4. Maintenance
5. Taxes & Licenses
6. Office Supplies
7. Telephone
8. Advertising
9. Miscellaneous Expenses
Total – Expenses

Subtracting the Total Expenses from the Total Gross Profits will reflect the Total Net Income.

Allow for major expenses during the first month/quarter of the budget because of the initial start-up costs and don’t forget that this is a “Work in Progress.” In fact, if you wish, use this as the title for your budget and remind yourself that changes are inevitable.

Have a professional, or at least another person, look over your figures checking for inaccuracies or inconsistencies. Be open to suggestions but remember that this is your business, your dream, your future and ultimately your responsibility.

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SMB Reviews
SMB Reviews 492 posts

SMBReviews is committed to providing small and mid-sized business owners with the information and resources they need to select the best service or product for their company.

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