4 MUST-HAVE COMPONENTS FOR SMALL BUSINESS BUDGETING: A BEGINNER’S GUIDE
I know you don’t want to hear it, but budgeting is essential for every business – not just the large ones. Yes, I see you over there shaking your head no…stay with me. It’s easy for money to slip through the cracks when you’re busy in your day-to-day mode. Am I spending too much on labor, materials, overhead? How would you know if you have no starting point to reference? I assure you that budget work is easier than capturing new sales to cover your unknown bloated costs. Today, I’ll walk you through the 4 key areas to consider when building a budget for your business.
1. Sales – what are you selling? If it’s a product you estimate the number of widgets you’ll sell, and what you expect your customer will pay per item. If you have a service, your revenue might be project-based, where you’ll do a certain number of them per year. Alternately, it might be how many billable hours you expect to generate. The more detailed your sales plan when building your budget, the more valuable it will be when using for benchmarking. If you’re able to break it down by month, great! If you have certain product lines, or major customers, include them too. This is one of the budget areas where having more detail up front is worth the extra time.
2. Labor – who is involved with making and delivering your output? This could be hourly employees, a salaried staff, or outside sales representatives. You’ll need to pull together the number of staff, average hours per week, average wages, and estimated payroll taxes. If you’re paying for benefits, don’t forget to include those amounts as well, along with any expected raises or bonuses you might plan to give.
3. Material costs – if your business is product-based, how much do the raw materials cost? If you buy product that you immediately sell as-is, this piece is pretty straightforward. If you alter them to create a final product, you might have to do a little math to see how many widgets you get from a pound/foot/unit of what you’re buying. Once you have this, you can simply multiply these amounts by what you calculated in step one. Don’t forget to include inflationary concerns if you have any.
4. Overhead costs – what other services or items do I need to have to run my business? These include things like the cost of your building, utilities, insurances, taxes, office supplies, consultants, transportation, marketing, or maintenance on building or equipment. The list of exact items depends on your business, but you can think of it as anyone who invoices you for items that weren’t in the first areas we discussed. Here too, try to think ahead and include costs for any new initiatives you’ve been dreaming about. A month-by-month breakdown is nice to plan for cash flow, but even getting it together in one spot is a good start.
Small business is a big thing. Pulling together information on these four things will help you better understand what to expect of your business and where your money is going. If you need additional support in collecting that data or putting it onto a flexible budget module – The Friendly CFO, LLC is ready to help! Just click the “Let’s Get Started” button to connect with us.
