(December 8, 2020)--Small business owners need to figure out many things when it comes to running business ventures. One very significant thing is the business budget, which can be intimidating if you do not know how to handle finances. Finding the right financial information, learning business finance terminologies, and putting all the data into one place is tedious. It is enough to scare a person who is running a business. Studies reveal that most small business owners lack a proper budget. In this regard, developing a reasonable approach is essential for creating a business budget. For many individuals, budgeting is their least favorite task. Nonetheless, it is necessary to gain success.
Mike Giannulis gives a step by step guide for creating a business budget
• Examine the revenue: the first step of the budgeting exercise is to understand the existing business and identify reliable revenue sources. By bringing together all the income sources, try to discover how much money comes into the business. For this, ensure to calculate the revenue and not the profit. Payment is the money that comes to the company before the expenses get deducted. Yield is the result remaining after expenses. After this, calculate your monthly income and multiply it twelve times to get an accurate picture of the yearly income. Also, be cautious of the seasonal changes so that you can prepare ahead for the leaner months.
• Deduct the fixed costs: after identifying the revenues, add all your fixed expenses. Fixed costs refer to the money required for the business's operation, which you can calculate daily, monthly, or yearly. Try to grab as much data as practicable. Examples of fixed costs include debt repayment, rent, supplies, taxes, payroll, and insurances.
• Determine the expenses: according to Mike Giannulis, for small business owners, it is significant to identify the variable costs within the organization. As the name suggests, variable expenses change based on how much you utilize the services. Also, remember the costs which are not functional for the organization. The examples of variable expenses encompass utilities, office supplies, replacing old equipment, professional development, owners' salary, and marketing costs.
• Contingency fund: contingency fund is essential for covering up unexpected costs. In case you face a budget crunch, these costs may cover up the operational expenses. You may prevent the fear of unexpected expenditure by making provisions for a contingency fund. These are also named emergency funds as they are essential tools during immediate times.
• Profit-loss statement: By adding up all the monthly income and subtracting the expenses, you will get an accurate picture of the organization's profit and loss. Remember that every month is not profitable, and it is right if you set up something new.
Various business owners love finances, budgets, and spreadsheets. Budgeting is an essential part of every business organization. Therefore, having a proper understanding of the organization's different aspects is crucial for creating a business budget and managing it effectively. It would be best if you learned the art of dealing with finances.