You have big plans for your business. You want to expand to new regions, build your clientele base, and grow your product/service range. How will you fund these plans though? In order to invest in new opportunities and develop your business, you need to think about your long-term goals in relation to your funds. A business budget will help you keep track of what’s coming in and out of your business and give you a better idea of how to allocate your cash. If you read our last blog post , you’ll know why you should create a business budget. Here, we’ll tell you how.
These steps will guide you through business budget planning:
- Review previous financial data (if you can) and look at industry trends and standards. Did your projections from the previous year match up to what was actually spent and earned? What can you gather from last year’s data that can inform this year’s budget planning? This is a good starting point for your budget, as it gives a realistic look into what to expect in the following year. For those of you just starting out your business, it’s helpful to either examine similar industry budgets (look online for examples) or to plan out your budget based on the few numbers you already have to work with.
- Calculate revenue. Identify all your income streams and find out how much money is coming into your business each month. Revenue is the money in your hands before expenses have been deducted. If you haven’t yet made money, make an educated guess of what you think you will be making.
- Determine expenses. Consider your fixed and variable costs. You may also want to set aside some money for unexpected one-off expenses. Whether it’s for computer replacements or equipment repairs, it’s a good idea to have an emergency fund for unplanned spending. It’s also important to plan for underperforming revenue expectations, especially for new businesses, or businesses going through change.
- Put together your profit and loss (P&L) statement and then create your cash flow projection. Your P&L statement will include the revenue and expenses you just calculated in the above steps. Subtract your expenses from your revenue and cross your fingers that you’ve made a profit. Your P&L statement will inform you of what you should be expecting each month. Remember: your revenue and expenses won’t necessarily look identical from month-to-month, especially if your business is seasonal. If you need help creating a cash flow formula, we gave some tips in our past blog post.
- Don’t forget about taxes! What’s your profit after taxes? From federal and provincial tax deductions to CPP and EI deductions, taxes take a good chunk out of your income. If you’re not sure about your tax situation, consider hiring an accountant or a team of CPAs like us who specialize in minimizing tax burden for businesses.
- Keep an eye on your cash flow projection as time goes on. In a previous blog post, we spoke about the key indicators that your business’ cash flow is in trouble and how 82% of small businesses fail due to poor cash flow management. A budget can help you pinpoint these trouble areas on a monthly basis before they get out of hand. Be sure to frequently reevaluate your budget to see if it makes sense for your current financial status.
Taking a look at where you’re spending and earning the most money can inform future decisions and allow you to make improvements. Failure to properly budget and cash flow plan can result in poor performance. However, we get it: budgeting and finances can be overwhelming. At Qmulus, we take into account every aspect of your business and its financial status to advise you on how to build ahead. Business budget planning doesn’t have to be a difficult task if you have expertise and experience on your side. Give us a call at 647-476-2145 or schedule an appointment, and we can create a roadmap to success together.