Times are hard right now, but that shouldn’t stop you from pursuing your dream of opening a small business. With the right resources and strategic planning, your new business venture can thrive. Creating and sticking to a budget is one thing you can do to ensure that your business has a chance at success. Unsure how to start creating your budget? This will help.
Examine Your Current Revenue
Before you can go forward, you must look backward. If you have an existing business, you should look at all your sources of revenue. This will give you an idea of what you can afford to put into your new business. If this is your first business, still examine your income streams so you can determine how much you can afford to put towards this new venture.
Minus Fixed Costs
Next, look at and predict all of the fixed costs associated with your business. This should include things like:
Once you determine your business’s fixed costs, you’ll subtract them from your current revenue.
Take into Consideration Your Variable Expenses
Variable expenses change depending on your level of production. They include things like:
- Office supplies
- Owner’s salary
After you add up all your predicted monthly variable costs, you’ll also subtract that from your revenue.
Set Aside Funds for the Unexpected
Things happen and sometimes we don’t have any control over them. Set aside some funds for a rainy day or unexpected costs. Trust us, something will happen when you least expect it; so make sure you’re prepared by adding additional funds to your budget specifically for contingencies.
Create a Profit and Loss Statement
After you’ve collected all the above information, you’re ready to create a profit and loss statement. It may sound complex but in reality, it’s not. You simply add up all your monthly income/revenue streams, add together your monthly fixed and variable costs, then subtract your total monthly costs from your total monthly revenue. This will give you either give you a negative or positive number. A positive number means that you’re going to be at a profit, a negative number means you’ll be at a loss.
Use Your P&L to Determine Budget For New Business
It’s perfectly normal for new businesses to initially not be profitable. After you’ve created your P&L, this document should be used to determine your new business budget. Look for trends such as:
- Seasonal trends
- Big purchases that create a beneficial loss
- Unexplainable higher profits or losses
Hire a Business Consultant
It’s always a good idea to have some help when starting a new business. Growth Team Strategies is here to help you. We offer small business consulting in Carroll County and we’ll be glad to help you create a budget for your new small business. Call or contact us today to learn more.