Creating Budgets for Your Business

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Creating Budgets for Your Business

Budgeting… is not every business owner’s favourite. But in order for your business to succeed, effective budgeting is important.

Budgets allow you to prepare for the future of your business, plan for growth, and measure your business’ performance.

Budgets allow us to track how much we’re spending on our products and services before they are sold – creating a baseline that we can plan a profit margin around.

Without a budget, you could be missing areas where you’re spending more than you should.

So how to start? Each business has its own needs, but the one thing that is true for ALL businesses, is that owners need to create a formal system for tracking money coming in, and money going out. “Keeping it all in your head” isn’t good enough – regardless of what medium your budgetary system appears in, it needs to be formally recorded somewhere.

For most business owners today, this means using some form of budgeting software on a computer. The advantage to these is that they can be integrated into Point of Sale machines, as well as online sales platforms – streamlining some basic bookkeeping work, and saving you time!

Once you’ve decided on where you’ll record your budget, it’s time to start measuring your costs. You should be measuring the cost of materials, overhead expenses such as rent and utilities, as well as the cost of your own time, delivery, and other ancillary costs.

Try and collect the receipts and bills for everything you’ve bought for several months, regardless of size. Small purchases do add up, and it’s important to have a budget that reflects the totality of your costs – not just the ‘core’ elements. If there are processing fees, taxes or other processing costs, factor these in as well.

Profit!

Yes – ultimately, your business should have the goal of turning a profit! Now that you know how much your product costs, you should start to think about what you’ll charge for it when you’re selling it to customers.

If you’re just starting out, and looking to build a customer base, it’s common to charge less than you’d ideally like in order to build a base of customers, and some brand awareness. Once your business has a reputation, recurring customers and online reviews, you’ll find it easier to charge a greater premium on top of your costs – this is your profit margin.

Finally, think about the future. Are there things that you can’t afford today that would make your business easier to run, or more profitable? Is there a piece of equipment that if you had it, you could create more products? A budget will help you put aside a percentage of your profits so that you can save for these purchases, creating a plan for future growth. For small businesses, this type of planning for the future is critical – once a business builds momentum, it’s much easier to grow sales than it is at the start. Budgeting for growth opportunities is an important practice that some owners miss out on.

Remember: Budgets are the structure on which your business can grow!

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