Business Budget Planning to Help You Scale
There is one simple fact when it comes to any type of finances: You need a budget. It matters not whether it is business finances or personal finances- a budget is an incredible tool that brings many benefits along with it. Some of the best benefits are:
It lets you take control of your money.
It gives you a full view of what needs to go out.
It shows you what you really have coming in.
It allows you to see where changes should be made or where they can be made to reach your goals.
With such benefits, business budget planning is the best way to start working to scale your business. This is a quick guide to help you get started.
What is Your Business?
Before jumping into making a budget, you need to have a clear idea of what your business is. If you are an established business or even if you are a start-up and have a solid business plan, this step will not be difficult. If you are just getting started, though, be sure you take some time here before you move on.
To truly budget effectively, you have to know what you need and the moves you need and want to make. It’s hard to do that without having a pretty clear vision for your business. You do not have to be 100 percent at this point- you will probably change things as you go anyway- just get as clear as you can.
What Are Your Business Goals?
You know you want to scale your business, but what exactly does that mean to you? What, precisely, are your business goals? What do you need to do to grow your business? Do you need to pick up more coaching clients? Do you need to sell more products? What will it take to grow your business?
At this point, do not limit yourself. If you need to pick up 100 more clients to reach your goals, write it down. Yes, it will take some time to do that, but it is best to start with your overall goal in mind as it will dictate the smaller goals you make along the way. That, of course, will help you decide how much money you need to dedicate to your goals. It all goes hand in hand, so get those goals on paper.
Business Budget Planning 101
Business budget planning is a necessary step to take no matter how big or how small your company is. Your company might just consist of you or you may employ 10,000 people. You might have two clients or 200,000. It honestly does not matter. Making a budget is crucial to your success. Without it, your money is going to take control of your business instead of you controlling both.
I am aware of the fact that business budget planning is hardly anyone’s idea of a good time- except mine, but I am a bit of a sucker for all things business. Anyway, it may not be fun for you, but it is important. Just remember that doing it can put you on track to reach your goals and the sooner you get it done, the sooner you can move onto making those dreams happen. Let’s get started.
Tools You Can Use
During your business budget planning, you are going to need some way to organize your numbers and planning.
Write It All Down
I personally prefer good old fashioned pen and paper for the initial planning. It tends to help me- and many other people- brainstorm ideas better, reorganize things, prioritize, and so on.
Budgeting Apps
After I have a workable tentative budget in front of me, I transfer the information into an app or software. A budget spreadsheet works really well. You can plug in your budget items, the due dates, monthly amount due, total balances due, expected amounts vs actual amounts, and more. You can then color code line items by priority, and you can automatically add up rows or columns.
Make It Graphic
Possibly my favorite part though is that you can turn that information into a chart. I do this with my bills and all of my monthly spending. Turning it into a line graph lets me see if my spending and bills have increased or decreased over time. I also like to turn it into a pie chart so I can see how much of my money is going to each category each month. You can easily go in, set up all of your categories and such for one month, then copy those items to twelve separate sheets so you can keep your whole year in one file.
I have always used Microsoft Excel for this, simply because I have known how to use the program since I was very young. However, there are a ton of other options, including Google Spreadsheets and some templates from places like Mint. There are also other apps and software you might consider, including You Need A Budget and Quickbooks. You have free and cheap options.
As a side note, I use Trello and Asana to keep up with my actual planning. You really do not need both, but I like both for different reasons. Trello is set up in such a way that I can let my creativity flow and type out my ideas and such on separate cards. Asana is more of a clean, checklist type website that I list separate steps on and set my goal date.
So, when it comes to business budget planning, I start with pen and paper to jot down idea. I then log onto Trello and let my creativity take over. After I have put down all of my ideas and the descriptions or extra notes, I pull up Asana and turn it into a checklist. From there, I open Excel and put it into financial terms.
I’ll admit, it probably seems a bit much to others, but this works for me. It allows me to easily progress from the brainstorming phase to the very technical part while still keep everything separate. I like how organized it helps me stay, especially since an organized plan is a lot easier to achieve. Take a look at these apps if you are not familiar with them. They just might help you in your planning. If not, find a process that works for you- no matter how many steps are in the process. If it helps you stay on track and reach your goals, it is worth every single step.
Building Success with the Budgetry Shop.
Figure Out Your Income
Once you have your goals listed and your tool- or tools- for business budget planning, you can start digging in. Start with your business income. If you have not started making money yet, you can start with the amount of personal funds you can use for the initial set up. You can also look into how much a business similar to yours averages in your area. Your actual income may differ greatly when it starts rolling in, but you need an idea at least.
When it comes to freelancing or being self-employed, there really is no set amount. Many people just use an average of their income over a set time- often six months to a year- and base their budget on that. I am not comfortable doing this, though.
Instead, I budget based on my worst month. This just feels safer to me. Normally, I have more than that worst month, so I always have a secondary plan. Anything I make over that amount is split by percentage- 10 percent to saving for emergencies, 40 percent toward growth activities, and 50 percent is usually saved in a separate account for future use.
Calculate the Fixed Costs
Next, calculate your fixed expenses- expenses that are basically the same each time you pay them. These are items such as:
Rent
Renewing hosting for your websites
Internet
Phone
Electric and water (if you are on budget billing- if not this would go in the variable costs)
Subtract your fixed costs from your income- or revenue. Hopefully, you have some leftover at this point. If not- if your fixed costs take your entire income- stop right now and go back through those costs. Can anything be cut out? Can you switch a supplier or get rates cut?
Also, go back up to your income. Did you add in every source? Is there a way to quickly increase the income?
Determine Your Variable Costs
Variable costs are those that vary each month, often according to the number of sales you make or contract you fulfill. It is often safest to use the highest total amount that you normally pay here unless of course, that highest amount has only happened once in a couple of years. Again, you can average out the costs, if you like to make things fit.
Some examples of variable costs might be:
Sales commissions
Marketing and advertising costs
Supplies, such as printer paper and ink
Shipping fees
Travel charges
Subtract these totals from what is left of your income. How much do you have left? If there is little or nothing at this point, it is going to be difficult to work on your business goals if you do not have the funds to do it. Before moving on to the next step in your business budget planning, take a look again at your variable costs. Just as with the fixed costs, is there a way to cut them down at all?
Remember, your fixed costs will not be the exact same as mine or anyone else’s. Additionally, what is a fixed cost for one business may be variable for another.
Add Your Goals
Take your big goals and break them into tiny, manageable, and affordable steps. We talked earlier about how it takes time to reach your goals, but you can do it if you break them down. Let's say your goal is to gain 10 new clients. Instead of trying to gain them all in one month when you have a tight budget, figure out what you can do to gain just one more this month. Next month, work on gaining two more. Keep working little bits at a time as your budget allows.
Add In Your One Time Expenditures
Depending on your business, there are purchases you will make that will only happen once- or a very rare occasion. As a freelance writer and blogger, some of my one time expenses included things like:
A laptop
Ergonomic Bluetooth keyboard and Bluetooth mouse
Hosting for my website
Domain Name
Theme for my website
There were other things, but those were the basics. Someone who runs a product-based business or manufacturing company might include one time expenses like:
The initial inventory
Machinery
Office equipment
Furniture
Truthfully, the one time spends can make up a really short list or a really long one. If you are just starting your business, do some research on what you will need.
Don’t Forget to Save
Just like you need an emergency fund for your personal finances, you need one for your business finances as well no matter how big or small it is. Consider this: I work from my laptop. If my laptop were to die on me and I had no money put to the side, what then? How would I make money?
It would obviously not be easy, so I have to have a backup plan. Every business needs savings for emergencies, so be sure that you add savings to your budget.
Give Yourself Some Space
If your average income is $5,000 a month, do your best not to budget a full $5,000 to go out. As I said, you need to save, but you also need to give yourself some space to breathe. What happens if you have a bad month next month? If you have sent everything out already, there is nothing left to help next month. What happens then? You spend the third, fourth and fifth months trying to play catch up. And it is hard to grow a business when you are consistently behind. It is better to scale little at a time.
Using my situation again, if I spend every dime that comes in, I cannot take a day off- at least not without worrying about things. I have goals- you have goals. We want to grow our businesses, yes, but we cannot spend every extra dime growing it. You have to give yourself some breathing room because you really never know what the future will bring.
Keep It Separate
You also need to make every effort to keep your business finances separate from your personal finances. Have separate checking and savings accounts. If you are worried you will get them mixed up, you can do what I did: Label each of your cards with a Sharpie. That way when you go grocery shopping and accidentally pull out the wrong card, you catch your mistake before you swipe it.
No, I’m not crazy, but with a big family, a business, and the other 2,000 things I have going on in a normal day, I decided I would take this one stress off of me. When it comes to managing money, I do not think you can ever be too careful. Feel free to steal my idea or come up with your own.
Revisit Your Budget and Goals
A budget is not something to set and forget. You do not complete the initial business budget planning and be done with it. It should change and grow as your business does. Make an appointment with yourself to check in with your budget and your goals.
You can do it as often as you like, but I try to do it at least every couple of months. It gives me the chance to find any weaknesses and make any tweaks. It also allows me to adapt the budget to any new ideas I might have.
Quick Scaling - Consider a Loan
If you are just starting out and need some help getting started, are already established and want to make some moves quickly, or you fall anywhere in between, you might consider getting a loan to help you out. With a personal installment loan, you can go ahead and make the moves you need to start or scale your business, and then pay it back little at a time.
Word of advice here, though: Give it a little extra thought. Do not jump to get a loan if you have not seriously considered your ideas. I have known a couple of people who would have an idea, get really excited, go all-in immediately, and be over the idea in a few days. By then, though, they were already in some form of debt for it.
Getting a loan, starting a business, and growing a business are all great ideas. Just be sure that you are committed to it, that you have thought it through, and that it is something you could actually make money from. Otherwise, you might find yourself in debt over an impulse.
Keep It Organized
In addition to completing your business budget planning with some sort of software or app, you need to find a way to keep receipts and invoices organized. Be sure to do some research on what precise financial papers you are required to keep for your business. If you have an accounting department, it can help you with this. If it is just you, consider hiring a bookkeeper or using something like Quickbooks to help you stay organized.
Conclusion
Business budget planning is a great way to take control of your business funds and scale your business as you hope to. It can be a very simple process, but some people feel more comfortable hiring a financial advisor to help in this very important part of their business. No matter the route you decide to go, remember that investing the time it takes to make your business budget is an investment into your future.