What is the most intimidating task for a new business owner? It is nothing but creating a business budget. Creating a budget is difficult because the owner or the entrepreneur has to forecast all the expenses on his own and he cannot afford to defer from the actual figures much. Budget planning is an important aspect of any business and if the entrepreneur is well versed with the concepts of business, it should not be tough for him to create a business friendly budget.
Before you start creating your business budget, do think of the following questions:
- What is the most important requirement on the first day of your business to get it going in the market?
- On an average what will be your fixed and variable expenses?
- How can you contribute to reduce the costs?
- Are you able to get donations from friends and relatives?
- What are those unwanted things, you can do without?
The lesser you spend on your startup, the quicker you will see your profits moving.
The following is a detailed business budget plan that will help you to plan your own startup budget:
Step 1 – The First Day of your business
Think about how you wish to spend the first day of your business. The first day of the business and the costs can be broken into the following categories; however, not every category will be applied to you:
- Facilities costs: this includes the cost of your location such as the rental purchase of your office. If you have started your business from home, you might not have this cost at all.
- Your fixed assets such as business furniture, vehicles, equipment etc. All this come under the capital investment category and these are required expenses.
- The materials and supplies of your business such as the stationery, advertising and promotional material and so on.
- The other costs such as insurance deposits, licenses and permits
These items can either be purchased and taken on rent as well. Judge your expenses accordingly.
Step 2 – Estimation of fixed and variable expenses monthly
You need to peruse and think over what will be your fixed and variable monthly expenses. Some of the common fixed expenses are:
- Telephone Bills
- Website service fees
- Advertising, promotion and publicity
- Business insurance and so on
After you have jotted down the fixed expenses, it is time to look into the variable expenses.
- Production cost
- Raw material cost
- Packaging and shipping cost
- Commission on sales
Step 3 – Estimation of monthly sales
If you have already run your pilot project, you might have an idea of how much can you expect your monthly sales to be. However, if you are yet to enter the market, it will be difficult for you to judge the monthly returns for your business. Do not worry, follow this three-way sales forecast and it will help you to plan your budget:
- Best case scenario where everything is good about your business and create an optimistic sales plan.
- Worst-case scenario where you show minimum growth and the business might be in a loss at this stage.
- Average scenario where production is equal to sales. No profit, no loss situation.
Step 4 – Cash Flow statement
This is a very important statement for your business. You need to put in all your expenses against your gains and observe how your cash in flowing in the business.
- Your monthly sales were $70,000
- You collected $47,000
- Your fixed costs $ 24,000
- Your variable costs $ 12,780
- The cash balance remains $10,220.
The cash balance is just the balance out of which you still need to pay off some debts; it is not your profit.
By changing the sales scenario, you can forecast the figures accordingly and create three different budget plans for your business. With the help of this budget plan, you will know what your required expenses are and what you should avoid spending on.
Here are some of the tips while creating a budget plan for your business:
- Make use of a good accounting software program. This will facilitate the changes and you can use the accounts repeatedly.
- If you do not have an accounting program, use spreadsheets
- If you are looking forward to lending, create three years cash flow statement, month-by-month basis along with the three years quarterly income statements.