2017 will be over before you know it, so if you haven’t prepared already, it is time to prepare your small business budget for 2018. While different factors determine your business’ failure or success, your ability to create and stick to a budget is the basic element to its success. Budgeting can help you with the following:
- Anticipate the inflows and outflows of cash
- Prepare for tax obligations
- Identify financing requirements
- Find growth opportunities
- Measure the performance of your business
According to the Small Business Administration (SBA), half of all small businesses fail within their first 5 years of operation. Smart business budgeting can give you a clear understanding of clearing that barrier.
Still not sure how to get started? Here are the five simple steps to follow;
- Perform Analysis Of Last Year Budget
Before you start budgeting for 2018 for your small business, first you need to evaluate your last year budget, if you previously have one. You also need to go through it line by line to determine how closely it matched your business’ actual expenses and income. This may also provide you a tangible starting point for next year’s changes in the budget.
In case you’ve never created a small business budget before, there are lots of free online resources available.
- Income Projection
You need to create a practical estimation of how much cash you expect to bring in monthly. In case you are just starting out, communicate with other small business owners in your network to see if they can come up with an idea of how much you can count on to make all through your first year of operation.
Getting a clear image of how much cash you actually expect to make is important for two reasons; one is overestimation, which can cause overspending and quickly put your business at risk. And the other one is underestimation, which may keep you from investing in new products, employees or marketing and abate your growth.
Running a small business is a game of balancing, and for that reason, accurate projection of income is essential.
- Tally Up Expenses
Once you understand your cash intake, you need to start checking your fixed expenses, which include rent, payroll, utilities, business insurance, and taxes.
These expenses may change year to year, particularly your tax obligations. As a standard rule, financial experts and certified public accountants frequently advocate setting aside almost 25-30% of your earnings for taxes. To learn more on small business taxes, visit IRS Small Business Tax Center.
In case you observe that your expenses are moving close to your projected income, it is the time to start identifying where you can make cuts.
- Plan For Unexpected Expenses
This is your unexpected costs. Consider about potential disruptions your business might experience, which include a broken equipment that needs to be replaced, increase in rent, and company vehicle repairs.
These can upset your small business budget in case you don’t plan in advance, so you need to make sure that you set some cash aside to cover various expenses like these.
For instance, you planned to start a marketing campaign in August. But, in July, you suddenly realize that there is so much pending work that you need to hire a worker. That new worker could mean you have to cut back on your promotional plans, unless you had already accounted for unexpected expenses in your budget.
- Monthly Review Your Budget
In order to keeping your small business on the right track, it is recommended to evaluate your budget at least once a month so that you can make any important adjustments if needed.
For instance, your fixed expenses are higher than you anticipated, you can make cuts in other areas, like nixing the coffee and bagels. If your income is more than expected, you can make additional investments in your business, such as paying down business debt or buying new equipment.