So, you’re running a highly successful small business. Fantastic! However, things aren’t as ideal as you want them to be. While things are going well, you’d like to see greater profits.
But how do you achieve that?
The answer may be by managing a more effective business budget.
As you know, every successful company needs a budget for knowledge and insight in order to minimize waste and increase profits.
If you’re wondering where to start, you’re in the right place. Corporate Business Solutions experts offer the following steps for creating a budget for your business today.
Understand Your Revenue
It’s nearly impossible to create a budget if don’t know how much money you’re earning. Thus, you’ll need to figure out, at the very least, a monthly average of your revenue.
If your business is already up and running, all you need to do is look at your sales numbers.
Separate Recurring Income and Expected Income
You should always separate your revenue into two separate categories: recurring and expected income.
Recurring income is the regular and reliable revenue the business generates from the likes of contract work and client retainers.
On the flip side, expected income is a prediction of future earnings. Expected income, for the most part, is a financial forecast for your business.
Determine Fixed Costs
What monthly expenses does your business have? This may refer to salaries, IT expenses or even travel costs. If you’re a start-up, you likely have to pay for a lot of initial expenses, such as technology marketing efforts.
When creating your budget, determine what your fixed business costs and how much they run you each month.
Pin Down Variable Expenses
In addition to fixed costs, small businesses have what are called variable costs. These expenses don’t have fixed priced tags and are a little more random than fixed costs.
For example, if you outsource work or use a freelancer, those costs can vary from month-to-month.
Depending on the performance of your business, variable expenses can increase or decrease. If your business is healthy and thriving, for example, you may have the more disposable cash to invest in variable expenses in order to grow your business for the long-term.
Create a Variance Report to Track and Manage Trends
One of the most critical components for keeping control of expenses and managing for a positive cash flow comes from developing a variance report that shows the difference between what has been budgeted and what is actually spent. This variance report should be set up so that a report can be run at any time to see the variances. The variance report allows you to have an early warning about negative trends that you can then address with corrective action so that you can protect your pre-planned profits as a percent of the expected revenue. There is a dollar for dollar impact of your bottom line profits for every increase in expenses for what has been budgeted. The variance report is a necessary management tool to control expenses and helps create a managerial-based accounting system that is designed to give business owners more control over their business.
Whether they are fixed costs, variable expenses or one-off payments, use your budget to see where you can save money. Ultimately, you want to make your business as efficient as possible in order to increase sales and profits.