Your idea for a new product or service is taking shape and the moment is right to set up a business to launch it properly. It’s an exciting time and your head is probably filled with sales and marketing and taking the world by storm. However, there’s one important thing you need to do before anything else, and that is to plan a watertight business budget which will keep everything on track. Without one, you risk overspending, wasting money, and not using your finances in the most cost-effective way, all of which can stop a fledgling business in its tracks.
Time spent on developing even the most basic business budget is well worth it in the long run in terms of the financial stability of your business and your personal peace of mind. So how do you start? It may be a daunting prospect, so we’ve put together a check list to get you started.
Negotiate with your suppliers
In order to create an accurate budget, it’s a good idea to meet your suppliers and negotiate rates that you’re both happy with and can sustain for the foreseeable future.
Work out your fixed costs
These are costs which are fixed for a set period of time, such as the rent of your premises or your annual utility bills.
Work out your variable expenses
These can fluctuate and are therefore less easy to allocate. One example could be that your business does unexpectedly well, and your product flies off the shelves. It’s good news, but at the same time you may need to increase your packaging and shipping costs considerably! Variable expenses can be complicated to work out, but should be estimated as closely as possible for an accurate budget.
Allow for one-off purchases
Business expenses such as the one-off purchase of a new company van or computer will set you back quite a bit, so look ahead and earmark money for these.
Calculate your net income
This will show you the profitability of the business. You need to calculate your gross income, and then subtract all your expenses, such as rent, interest on loans, staff salaries, stock or raw materials etc. You will also need to ensure you are able to pay all your business taxes, or you could face stiff penalties from HMRC. Include everything you can think of, as even small expenses such as the office coffee supply can soon add up. Subtract these, and the resulting total will be your net income.
Make adjustments
Once you have your budget worked out, it’s a good idea to go over it again and allow for possible adjustments, for example the inflation rate. You may need to make other alterations – if your business makes garden furniture, your summer income is likely to be considerably larger than your winter one so you will need to even that out. It’s also a good idea to build in an emergency plan for a bit of security – for example, a major IT issue involving external help could mean considerable expense.
Having worked out your budget, you now have a much better idea of what your business can and can’t undertake financially, and as a business owner, you can have confidence in planning for growth. Your budget is the guide to keeping your business on the right track, but how do you ensure you stick to it? Here are a few tips:
Review your budget regularly
Reviewing your budget monthly or quarterly makes a lot of sense; you won’t be caught out by unforeseen circumstances, and you can adjust your spending to ensure you stay within it.
Be realistic
There’s no point in underestimating expenses to make your budget look better than it actually is. It’s tempting but it won’t pay dividends in the long run.
Be proactive about keeping records
You can’t stick to a budget if you don’t file your receipts or make a note of travel expenses. Be rigorous about record-keeping – accounting software can be an immense help with this.
At AMR Bookkeeping Solutions, our professional and friendly team are experts at planning for businesses large or small. Contact us on 01892 559480 or have a look at our website to see how we could help you stay on budget.
