Small Business Budget - Right For ME?
Launching a business can be expensive. Like a target run for toothpaste, you somehow manage to spend $200 without buying what you came for. The little expenses can sink a business fast unless you are following a detailed and well maintained budget.
Budgets have a bad rap and are often associated with being broke or cheap. But what if we rephrase that to say "I want start a 401k" and "I want to travel." Whatever your goal is as a business owner, you need to plan for it. So let's outline some tips to keep your budget in top shape.
A good budget says no to frivolous spending and impulsive "needs" today so you can focus on your future.
Expenses are the total costs associated with your business. From business licenses, advertising, insurance, office supplies and more. Small business owners have a lot of responsibility and failing to anticipate expenses could put your organization in jeopardy. An accounting software can easily transfer your financial information into a budget to compare actual spending vs. estimated expenses. If you're not there yet, start by making a list of items you've paid for and anticipate paying for this year. Consider on going expenses (website hosting/rent), quarterly (self-employment taxes), once a year (tax prep) and miscellaneous (client gifts.) When in doubt, err on the side of caution. It's better to anticipate an expense than have it creep upon you. Once you tally that up, you know how much money you need to stay afloat. While the bare minimum shouldn't be your goal, it is vital in the next step.
Be Realistic about Income
How many clients do you have or will you need to cover expenses? First, let's calculate how much it costs to provide your service or product to a client. This is a critical factor in determining your pricing. If you offer a service with no tangible product, costs include any tools, travel and software you use to communicate with your client. Once you determine the value of your service or product, you can calculate how many clients or product sales you need. Great news! You need X clients at $xxx.xx/project to cover expenses, pay yourself a salary and save money!!
Remember that retirement plan we mentioned earlier. Just because you launched your own business doesn't mean it's totally out of reach. Create an expense line for plan contributions and make them! Self-employed individuals (freelancers) and small business owners can create a SEP-IRA with a simplified method to contribute to your own retirement savings. Bonus - it's deductible.**
What about reinvesting in your company? Yep, you should save for that too. Computers, cameras and company vehicles are vital pieces of equipment that ultimately have shelf lives. Make sure you are considering long-term goals for your company.
Time is Money
Remember, while your time may not take money directly out of your pocket it is important to budget. If you can't complete an objective efficiently, it may be keeping you from doing what really makes you money. In the early stages of your business, the budget will undergo changes to adjust to new or fluctuating costs. Reviewing your budget often will help you make confident business decisions quickly.