Whether you’re a SEM or a sole trader, it’s important to keep your finances in check through proper budgeting. But for those who aren’t good with numbers, it can be difficult to know where to begin, let alone what goes into a business budget template.
But before learning how to write a budget and understand its essential elements, let’s discuss first why it matters to your business.
The value of budgeting
Why is budgeting important? To start, proper budgeting can help you establish monetary stability for your business. It allows you to be in a proactive financial position since you’re controlling and tracking your expenses better — removing income ambiguity.
Aside from that, here are the other reasons why it’s important to learn to budget the right way:
- Clarity to make decisions. Making decisions is a lot easier when you have accurate budget information to base your supply purchases on.
- Understand where you’re overspending. You can avoid spending too much on things that aren’t investment-worthy providing a better financial bottom line for your business.
- Plan for growth/goals. Whatever you’d like to achieve in the next 5 years, budgeting lets you see how much you need to save to accomplish those goals.
- Gain funding/lending for your business. If you plan to expand your business, you need a significant amount of funding. And any bank or lender will ask for a business’s financial status.
- Ensure good cash flow. You need cash flowing to cover everyday expenses that are critical for operations and other important matters to keep your business afloat.
- Have provisions for unexpected expenses. The pandemic forced stores to suspend operations — halting sales. As the weeks went by, some stores went out of business leading to massive employee layoffs. You can prevent this from happening with a streamlined budget plan in place.
Now that we know how budgeting can grow your business — and save it — let’s now learn how you can be smart with your budget
11 Smart Tips on How to Write a Budget for Your Small Business
It’s better to make sure you account all financial details when you’re creating your business budget template. Try to capture all the movements of your money, as this will result in the most accurate picture of where your finances are – even the small things (like monthly subscriptions) that can add up.
Ask for advice
Never hesitate to seek help from professionals. If you’re confused about tax obligations or having trouble tracking your income and expenses, reach out to a financial advisor. Doing so will save you money and time because you’ll be able to catch up with outstanding taxes, fees or duties to pay early.
Use a business budget template
You may consider purchasing an accounting software. But it wouldn’t be a viable option if you’re running a small-sized business and still tight on the budget. You can start with a spreadsheet template to track your business budget.
Various tabs along the bottom of spreadsheets can be good for tracking different budget elements such as income, expenses, and projected income vs. actual income.
Take a look at this basic example:
|Monthly operating income|
|Monthly non-operating income|
|Monthly non-operating expenses|
Set goals & measure them regularly
Whether you want to save 10% of your income for the next 12 months, or reduce overspending, use your budget to regularly measure your progress. Seeing it visually laid out in front of you makes it easier to track and identify what you need to fix.
Align budget with strategy
If you have a strategy for growth, then you need to closely align it with your budget. Your strategy will likely require added expenses (e.g. buying extra resources, developing a prototype, investing in a new revenue stream). These need to be factored into your business budget.
From asking for discounts to buying long-term package deals, being prudent with where you spend your money is imperative in business. Look to review and negotiate these on a periodic basis.
Overestimate costs and minimise expenses
The best way to give your budget ‘breathing room’ is to overestimate the costs you have to pay and minimise expenses. So, if you work on a project-by-project basis, always allow them to go over the expected average time to cover the extra time spent or unexpected expenses.
While all businesses have some necessary expenses, be mindful of any areas you could cut costs. You can also ask yourself, is this a vital part of my business? Can I still operate efficiently without it?
Know your gross profit margin
The gross profit margin of your business provides a big picture of the financial health of your operations. Ultimately, it’s the remaining ‘cash’ you have at the end of the financial year after paying all expenses. With this insight, it highlights whether you have struck the right balance between overall revenue and expenses.
Identify your risks
When putting together your budget, you should ideally look at the risks your business faces too. This helps the planning of the unexpected, as well as how to lessen its impact. So, consider things such as a minimum wage increase, or the impact on your operations if a natural disaster were to happen.
Understand your sales cycle
Depending on what your business sells, it’s crucial to understand your average sales cycle and if it’s affected by peaks and flows throughout the year.
When you know how long a sale takes to eventuate, you can carry out a forecast of your budget. And if a slow period is coming up, you can plan early on how to manage upcoming expenses and minimise costs.
Your budget should be reviewed on a regular basis to make sure you’re sticking to your goals and that there haven’t been too many unexpected expenses to cover.
It’s also good to be reviewing suppliers and other costs, as well as looking at your own price points/rates. There might come a time for you to increase them but do it incrementally to lessen the shock of your customers.
Start creating your small business budget
Creating a small business budget doesn’t have to be complicated, but it does need to be comprehensive. Try not to think of it as a hassle that takes up your time, but more as a tool you can use to enhance your business, streamline its efficiencies, and achieve your goals. And if you’re planning to get your business online, purchase a reliable web hosting product that doesn’t necessarily hurt your overall budget.