Your small business needs a budget to ensure sustainable growth – but what goes into creating it, and how should you put it together? We’ve got you covered – here are 5 steps to put together a budget for your small business.
1. Calculate your income: Count up all your income sources and all the money flowing into your business. Calculate all the money coming into your business every month. If you have multiple income sources (e.g. you drive for both Uber and Lyft, or you have multiple freelance gigs), make sure you’re accounting for all these sources in your total.
2. Calculate fixed costs: After determining your income, you’ll want to get a handle on your fixed costs – these are costs that stay the same month to month (e.g. monthly rent).
3. Calculate variable costs: Variable costs are exactly what they sound like – expenses that vary month to month. This can be things like gas, sales commissions, or travel costs. Even though these costs will by definition vary from month to month, tallying them each month will give you a ballpark sense of how they fluctuate and approximately how much money you should bank for them.
4. Predict and plan for one-time costs: In addition to regular fixed and variable expenses, your business will likely have one-time costs (e.g. equipment, licenses) that also need to be factored into your budget. If you already know you have one-time expenses on the horizon (e.g. you know you’ll need a new car soon), set aside the money ahead of time. Even if you’re not sure what one-off expenses you’ll have in the coming months, we recommend setting aside a “buffer” fund to cover potential unplanned costs.
5. Put it all together: Once you have your income and expenses, you’ll subtract all your expenses from your income to see your monthly profit. In equation form, this looks like: Monthly income – monthly expenses = net income (profit). Once you know your monthly profit numbers, you can be confident in making sound spending decisions moving forward, as well as seeing where you might be able to cut costs or seek support. Happy budgeting!