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Starting a small business is an exciting adventure but it requires an immense amount of planning and dedication – and a little bit of luck!
Creating a business budget for your SMB is essential, especially because more than 50% of small businesses fail within their first year.
This simple budget guide will ensure you’re equipped with the best tips to help make your small business a success!
Why Is Budgeting For Your SMB Important?
Small business owners know how tough it can be trying to stay afloat with all the social media accounts, digital marketing, influencer marketing, and other tasks needed to make a business successful.
On the other hand, other businesses might find it easy to develop a system with new clients and money coming in without too much effort.
Regardless, business models may differ but every business relies on minimising expenses and maximising profits.
Budgets help small business owners to manage their funds more efficiently, keep track of unnecessary spending, identify issues and make better decisions.
Investing a reasonable amount of time into understanding the ins and outs of your business is the perfect example of a recipe for success.
Spend as much time on your budget as you would on things like marketing.
This will allow you to see your SMB from a fresh perspective. A simple and effective budget can be instrumental in achieving your long-term financial goals as a business owner!
Creating A Business Budget For Your Small Business
More often than not, people tend to struggle when it comes to budgeting and financial planning. But, it’s an integral part of every single business.
Making financial decisions can make or break your SMB and there are some key takeaways in this article that have helped many businesses.
You don’t need fancy business software to compile a simple budget, there are more than enough resources and free tools available online.
The budget guide for a successful SMB is a lot simpler than you may think.
1. Identify Income Sources + Calculate Monthly Revenue
It’s important to identify all your income sources to have a clear picture of how you generate money.
Calculate how much income you earn from these sources, this way you can easily manage what’s coming in.
If you’re just starting you can do some relative estimates to calculate what your potential income could be.
2. Write Down Your Fixed Costs
Now it’s time to determine your monthly expenses. The things you spend money on every single month such as rent, insurance, raw materials, etc.
Once you’ve determined these costs you’ll have a better idea of how much you spend every month. Create a list of things you need to pay every month.
Think about getting assistance from institutions such as Castle Water to help mitigate costs to your business.
If you’ve got a limited budget it’s essential to calculate costs of recurring costs such as services, salaries of employees, hiring new employees, and remember to put some money away for your emergency fund.
3. Identify Variable & Once-off Costs
Every industry has certain variable costs that differ from month to month.
For example, in some months your utility bills might be higher or lower based on the amount of work you did in the month.
Your business might have an annual, once-off website hosting expense, recurring paid ads or bing ads, or even fluctuating logistics expenses in some months.
Save time and money by calculating your small business’s variable and once-off costs.
4. Track Your Small Businesses Cash Flow
Creating a cash flow statement is one of the most important things every SMB owner needs to do.
Part of the budgeting process involves understanding the difference between cash flow and profit. Here’s an article by Harvard Business School that details it nicely.
5. Revise & Replicate
The key here is consistency. In this case, you need to revise all the steps regularly and replicate the process.
This will help you understand your SMB better and see if you’re making enough money or where you could cut down on production costs.
You should review your budget often, at least every quarter because this will allow you to project whether your SMB is operating optimally.
Regularly review your budget, account for unexpected expenses, calculate projected figures and see how your business grows!
Does this work for all businesses?
This budget guide was designed to be applied to most businesses.
Regardless of how many employees a company has or how big its sales team is – there are always ways to cut down on variable expenses. Budgeting properly means more money in your pocket!
Do I need accounting experience to use this budget?
Absolutely not! Although financial insights and experience in accounting would be beneficial but aren’t a prerequisite. This budget guide can be applied by anyone to ensure business success!
Does this budget apply to social media management companies too?
Of course! If you’re a social media manager or own your own social media management company you can apply the same simple 5-step budget to your business.
Your business operating budget might be different compared to small local businesses that sell goods but in theory, the principles stay the same.