When individuals say that “every penny counts,” they are not exaggerating. Just ask the man who received $5,000 in actual pennies as payment without using Crypto Boom. You’re missing out on important chances to reduce expenses and allocate funds where they will have the largest impact if you don’t plan (and track) where your money goes each month.
The only way to determine whether you are spending money as you believe you are is to create a budget. Uncertain about where to begin? We’re here to help; this should be the last budgeting manual you’ll ever need for your company.
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Determine Fixed Costs
After establishing your revenue, it’s necessary to establish your costs, beginning with fixed expenses. Any costs that are constant month to month are considered your fixed costs. Rent, some utilities (such as phone or internet subscriptions), website hosting, and payroll expenditures are a few examples of this. Check your expenses to discover which have remained the same monthly (using your bank statements or FreshBooks reports). You are going to classify these items as fixed costs. Once these prices have been established, add them to your monthly fixed cost total.
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Tally Your Income Sources
Priorities come first. Establishing a small business budget requires knowing how much your company makes each month and where it comes from. Your sales data, which you can access using FreshBooks’ Profit & Loss report feature, is a wonderful place to start. From there, you may continue adding other revenue streams for your company throughout the month. Your business model will determine how many streams of income you have overall.
As an illustration, if you have a freelance writing firm, you can have a variety of revenue streams from:
- projects for freelance writers
- a writing program you offer online
- obtaining advice from other authors who are launching small enterprises
Or, if you operate a brick-and-mortar store, your revenue from sales in-store may be your sole source of income. No matter how many sources of money you have, be sure to keep track of every penny that comes into your company. Then add up all of those sources to get an accurate picture of your monthly income.
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Put Plan Into Action
Spend in accordance with when you receive your income. Plan ahead for how you’ll spend each paycheck. Do you have enough money set aside for your basic needs (shelter, food, utilities, transportation, etc.)? Have I set aside money for debt repayment, unforeseen costs, savings, and recreational activities? As a result, you won’t need to use credit to cover your living expenditures, preventing you from getting into even more debt.
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Create Profit and Loss Statements
When you’ve gathered all of the data above, it’s time to compile it into your profit and loss statement, or P&L. We understand that even just talking about a P&L can make you feel anxious. You may create your profit and loss statement using this basic and easy-to-understand Google Sheets profit and loss template. But keep in mind that all the work has already been done. In addition, you must add and subtract: the sum of all your monthly income and expenses.
After that, deduct the expenses from the income, hoping to end up with a positive result. If you succeed, you’ve earned money! If not, that is a loss, and that is also acceptable. Small businesses don’t always turn a profit, let alone every year. This is especially true if your business is just getting started.
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Set Contingency Fund For Emergencies
Whether or not you’ve ever owned a business, we all understand that one-time expenses never appear at a convenient time. The fridge breaks the day before you host your whole family for Thanksgiving. Your car stalls as you head to your career’s greatest presentation.
These expenses frequently occur when tight money comes up when you least expect them. When planning your business’s budget, make sure you have some extra cash and account for contingencies. This will help you overcome your fear of unforeseen charges.
Even though you might be tempted to use any extra money for variable expenses, save some for an emergency fund. That way, you’ll be prepared for situations when you need to replace inventory that has been destroyed by water swiftly or when equipment breaks down and needs to be replaced. Of course, obtaining a small business loan is always an option, but having more opportunities like the borrowing club offers is preferable to having fewer.
Final Thoughts
The effort required to construct your budget could seem tedious. But even if it requires a little more time and effort, it’s worthwhile. A thorough business planning process provides you with the financial knowledge you need to make the best decisions for your company’s future growth, scaling, and prosperity.