If you haven't made a budget since high school personal finance class, no judgement! But whether or not you commit to a personal budget, you should absolutely use one in your business.
Before you roll your eyes and say, "Whatever, Mom," hear me out! Having a solid budget for your business helps you control expenses, maximize profit, and reduce your financial stress. And if you're a money nerd like I am, creating a business budget can actually be kind of fun!
Don't believe me? Keep reading!
Why You Should Have a Budget For Your Business
I got a couple raises during my corporate days (humblebrag), but I constantly found myself in the same cycle:
"I got a raise. Woohoo!"
"Wow, I can afford so much more now. No more living paycheck-to-paycheck."
"Shoot, I'm running low. How much longer until payday?"
"Whelp, there goes my last $100. I could sure use a raise."
No matter how much money I made, I was constantly running out. Turns out, the problem wasn't my salary but my money habits. I didn't know how to track my finances and reel back my spending.
When you struggle with poor financial habits, you'll find yourself broke no matter your salary. (That's why some of your friends making six figures still eat 99-cent ramen every day and rack up tons of credit card bills.) They're living outside of their means and spending money they don't have.
A business budget is just as important as a personal budget. You can't maximize your profit without tracking and managing your expenses.
How to Create a Business Budget
Grab a notebook, open Excel, or download that budgeting app your mom swears by. It's time to make your business budget!
Step 1: See the big picture.
Before you start throwing out numbers, you have to get a clear picture of your business's financial life. How much are you making? How much are you spending? How much are you taking home? If you're just now getting serious about your business finances, you might have a hard time calculating these numbers. If you're struggling, just reach out!
Whatever you do, nail down these numbers before moving on to step two.
Step 2: Evaluate and categorize your expenses.
Next, look at all your business expenses, and categorize them. (For example: office space, mileage, supplies, and equipment, software and services, business development.)
Chances are, you'll find a few expenses that aren't really necessary. Sit with them for a bit and determine whether or not they're making you money. If not, dump them! The fewer expenses you have, the more profit you can take home.
Step 3: Set your limits.
Now that you know which expenses are non-negotiable, it's time to assign some numbers to them. Here's a good place to start.
30% profit for taxes.
10% profit for a business savings account.
______% for expenses. This depends on what your business needs.
______% for personal income. This depends on how much is left after taxes, savings, and expenses.
In the end, the formula should look like this:
(Total Revenue - Expenses) = PROFIT
Profit x 0.3 = TAX SAVINGS
Profit x 0.1 = BUSINESS SAVINGS
Remaining Profit = TAKE HOME PAY
Sticking to Your Business Budget
Now that you've created your business budget, how do you stick to it?
As with any habit, sticking to a business budget takes practice. Plan a weekly and monthly "money date" to look over your budget, make sure you're staying within your limits, and find ways to maximize your profit. Over time, you'll probably find you can do with fewer expenses in order to make more profit.
Another way to ensure you stick with your budget is to set realistic goals. If you usually spend $1,000 a month in supplies, don't go trying to cut that back to $100 in your first month of budgeting. Chances are, you'll blow through that, get frustrated, and give up on your budget altogether. Instead, start with small adjustments and leave yourself some wiggle room for slip-ups and rewards.
The more you practice, the more money you'll save. Let that extra cash be your motivator for sticking to your business budget!
DIY-ing your business finances? I like the way you operate.
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