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How to Set a Budget for Your Business

Your small business needs a budget to help you plan ahead and decide how you’ll spend your money. Without a budget, you run the risk of either spending more than you make or not spending enough to grow your business. Small businesses should consider setting monthly budgets instead of annual ones so they can easily adjust as they grow. Keep reading to learn how to set a budget for your company.

1. Forecast your revenue

If you’ve already been operating your business, you can forecast your income based on trends you’ve noticed in the past. If you’re just starting out, you’ll need to make some assumptions based on your location, hours of operation, and other businesses in your industry.

2. Determine your costs

When you’re determining how much your business will cost to run each month, look at both fixed and variable expenses.

Fixed expenses don’t usually change from month-to-month. They include things like rent, loan payments, and salaries. These costs are easy to plan for because you generally know how much you’ll owe each month.

Variable expenses will change each month. They include things like utilities, supplies, shipping costs, and hourly wages. Look at prior months’ expenses to determine how much you typically spend. If you’re a new business, research typical costs associated with your industry and location to determine how much you can expect to pay.

Read also: What are Some Examples of Direct & Indirect Expenses?

3. Set aside money for your emergency fund

You never know when something unexpected will hit your business – your A/C might go out or you could have a leaner month than expected and have a hard time making payroll. Subtract your costs from your income to see how much you expect to have leftover each month. Then, plan to put some of that into an emergency savings account.

4. Compare your budgeted and actual expenses and revenue

At the end of the month, compare your actual income and expenses with your budgeted amounts. This will help you identify potential problems, budget more accurately in the future, and look for new opportunities.

For example, if your variable expenses were significantly higher than planned, look to see if you need to find a new supplier or renegotiate rates. On the other hand, if you ended up with a lot more cash left over than planned, look at ways to reinvest your profits to grow your business. Read also: 6 Ways to Save Money in Your Small Business