With 2022 in view, everyone is making a New Year's resolutions list and for business owners, learning how to budget better is probably one of those things, right? Okay, let’s get into it.
It doesn’t matter how old your business is, it’s fine if you didn’t have a good budget strategy in the first place, there’s no discrimination in this house.
Many business owners think of budgeting as their least favorite part of running a business— because it calls them out on their bad habits and keeps them in check. But to build a thriving business, creating and maintaining a proper business budget is essential, as it plays a major role in how you make financial decisions in your business.
Here’s an introduction to budgeting and 5 tips on how to create the perfect business budget.
What is a business budget and why should you care as a small business owner?
Budget in business is making an educated guess as to how your business’s finances would look in the future, which helps you prepare how to save and spend.
A business budget is a rundown of your business’ finances; it focuses on the current state of your finances and your future or long-term financial goals as you run your business.
Why do small businesses need budgets?
- To make sound financial decisions.
- Identify where to cut spending or grow income.
- Predicting slow months and keeping you out of debt.
- Providing a window into the future.
- Helping you keep control of the business.
Now that we know the what and the why, let’s get into the how of creating budgets for small businesses.
Know Your Income, It Is Important!
First things first, to build a small business budget you need to make a round figure as to how much money your business drives in monthly. And I don’t mean your profit, I specifically mean Revenue- that money you have made without deducting any expenses.
The Kippa app is a great place to start calculating your revenue, invoicing generator, the records, and cashbook features respectively can help you figure out where some of your income streams come from.
Once you have all your monthly income records, which I suggest you monitor for some time, say about 6 months to a year. This helps you understand pattern changes in your income, and this gives you a financial cushion because you are prepared.
Understand Your Expenses
Another tip to consider while preparing your business budget is to get to know both your fixed cost and variable expenses.
Fixed Cost- These are the recurring expenses you need to take care of in operating your business; this means the money you spend on expenses that you're sure of and the amount you pay hardly ever changes. It's fixed because you already know how much to take out from your profit, this includes Rent, Data money, Employee salary, etc
Variable Expenses- These expenses unlike the fixed costs are not stagnant, they fluctuate depending usually on your business's output. This includes; electricity bills, shipping costs, your salary, equipment maintenance, etc
You should utilize the Kippa cashbook feature, it would help you calculate your profits and losses very easily in the Bookkeeping app. This helps you stay on track with your business’s spending no matter what.
Plan For That One Expense Wey Go Break Bank!
One-time payments are some of the most unpleasant and inconvenient expenses for anyone, especially small business owners. Imagine a piece of equipment you rely on to produce your business’s output suddenly breaks down and it's beyond repair, which means you have to buy a new one ASAP! But where’s the money you need to foot this expense when you don't have an emergency piggy bank with money saved from the rainy days?
You have to prepare for burdens like this to avoid any problems in your business moving forwards, make accommodations for it in your business budget and you are safe. This is as good as just saving for your business.
Create An Accurate Profit And Loss Statement When You Automate Your Finances
Okay, you have figured out cash flow (your income streams) and expenses (Fixed and variable expenses). So what do you do with this knowledge you have accumulated?
Minus your total cash flow from total expenses and whatever figures you have depending on if it is positive or negative determines your financial standing.
If you’ve made a profit, it is positive and If not, that’s a loss — and that’s OK, too; most small businesses don't make the best profit every month, it may take time. But it always works out in the end.
Note: After adding all these figures together, you get a view of what your business makes and losses each month; therefore it is easy to use those results to eyeball a budget and to figure out how much you should be spending and saving in your business.
Don't worry about any tedious maths, because just by inputting all your incomes and expenses in the Kippa app at intervals, we would provide you with accurate records of your financial information. Both with our cash-book and record features all for FREE!
Be Realistic
I understand that as a small business owner, you are probably under a lot of pressure to set new year resolutions and achieve them perfectly; you need to free yourself of that toxic mentality of perfectionism.
A business budget cannot be perfect and besides it is for you to learn how to plan for and use your money for the right things. It is a long-term goal and it won't be easy in the beginning, but with diligence, it becomes part of your business life.
To Sum It All Up
Creating a business budget may not seem too easy at first, it may require a lot of time and energy, but I know that it will always be worth it.
Your budget should not be a set-it-and-forget-it exercise. Make sure to schedule time to check in on your progress and make changes as needed. With Kippa it is as easy as pie.
