Did you know that not only do your personal finances need a budget but your business needs a budget too? If you are like most of us you probably have a limited view of what a small business budget even is. Tell me if this sounds familiar to you…
When you think of the word budget do you think about:
- Having to track each and every penny
- Complicated spreadsheets
- Percentages, recommended amounts and things you “should” be doing with your money
- Lack of pleasure and fun
If any of these sound familiar – first, pop over here to read about what a budget really is, and then come back and read more about why you absolutely need one if you want a successful business.
Why Create a Small Business Budget
First we need to understand why you need a small business budget to begin with. Think about the most successful companies you can think of – maybe Apple, Amazon, Google…do you imagine any of them are “winging it” with their finances?
No way! Now they may have businesses that are dealing with a lot more money than you. Let’s bring it down some levels. Think about your local mom-n-pop coffee shop. Do you think they have stayed in the family business for generations by just crossing their fingers and hoping the numbers work out?
Why do you think that when applying for a small business loan the creditors first want to see a business plan. They want the numbers! They want to know how you plan on paying your bills, making money and paying them back.
No matter the size of your business, you cannot grow your business and have it last without managing the financial aspect. There is a very specific reason that most small businesses go out of business within the first 18 months – it’s finances.
Do not let this happen to your business! Ok, got you on board now? Let’s look at how to do this then!
How to Create a Small Business Budget: Step 1 – Income
Knowing your income streams is the first step to creating a small business budget. Seems simple enough right? Here are the things you need to consider:
- How many revenue streams do you have right now?
- What are they currently bringing in?
- Do you expect that to continue based on your past history?
- Are you looking to add more revenue streams to your business?
- Do all of your revenue streams add up to your overall revenue goal?
This doesn’t have to be fancy – you can write this on a piece of paper! What are you selling, what is it bringing in and is it likely to continue. Do all the things you are selling add up to the number you want/need?
You may or may not know the answer to that last question yet until the end but that’s ok. Don’t sweat it – you’ll get there.
If you have not yet started your business, this is where you make projections (your best guess) as to what you plan to sell and how many and how often. Total that up.
How to Create a Small Business Budget: Step 2 – Bills
We could get all technical and divide this up into overhead, recurring, and all the rest but I’m about keeping stuff simple. What does it cost to keep your business running? Don’t leave anything out here. We sometimes forget those annual payments for certain things so if you’ve been in business for a while your best bet is to review what you’ve paid for in the past so you don’t miss anything.
If you have not yet started your business, list the things you will have to pay for simply to start selling. (Hint: practically nothing. You don’t need a website, a storefront or a fancy credit card processor. You can sell through social media with a paypal link if you wanted to. For real).
How to Create a Small Business Budget: Step 3 – Taxes
No getting around it, taxes are a reality. If you live in the US and are self-employed you will likely find yourself submitting quarterly tax payments. This is money you should be setting aside in your budget to pay so when that quarterly amount comes due you simply send in the $$ and move on. No sweat.
Now, how the heck do you know how much you should be setting aside? Every person’s situation is different and it depends on your family situation, income level and where you live as well as other factors like whether you own a home or other things. Best advice? Hire a tax pro. This is not something you mess with. Besides filing taxes is a drag, a licensed tax professional can help you figure the quarterly amount and will help you file your annual taxes when the time comes. Trust me the investment is worth its weight in gold! Do NOT DIY your business taxes.
How to Create a Small Business Budget: Step 4 – Owner’s Salary
Pretty please tell me that you are planning to pay yourself from your business! Because if you are not, why the heck are you running a business?
You deserve to be earning a healthy salary from your business. Your pricing, revenue and your entire small business budget should be working to accomplish this. Stay far away from the biggest mistake people make when thinking about setting their own salary – matching their day job salary.
Seriously? You can pick any number in the world and you pick a number someone else told you that your work was worth? No, as the CEO of your business you get to set your own salary, determine your own worth and it should be abundant baby!
How to Create A Small Business Budget: Step 5 – Profit Savings
You don’t want a business that only pays the taxes, bills and yourself. You want a business that turns a profit. I know that some financial folks might disagree with me here but I don’t care. Yes, you get taxed on your profit but who cares? You’re paying taxes anyway.
Why do you want profit (and more specifically profit savings) in your business? Because unexpected things happen. Hello COVID-19! Just like you want some savings in your personal finances to help in case of emergency your business deserves the same consideration.
Playing it so close to the margin (where you are just covering bills and expenses with nothing left over) is why so many businesses fail. They do not have the savings to expand, grow and cover costs when stuff comes up. I know that no one plans for emergencies to happen but they WILL happen so you might as well be prepared. This is why you’re creating this small business budget in the first place, right?
How to Create a Small Business Budget: Putting it all together
So how do you put all this information together in a way that’s easy to understand? Well I created the Bulletproof Business Budget Template just for you. You can find it included in the Digital CEO’s Roadmap to Financial Freedom below. Click the button below for instant access!