Q: I’m in my second year of running my business just outside of Portland, Oregon, and I want to do something that I’ve never done before in 2020: create a budget. I know it’s important, but it’s always seemed like a task too huge for me to conquer. But, I want to try. Can you help me? What should I do first?
A: Kudos to you for looking to starting off the new decade right by establishing a budget for your business! This is the ultimate form of self-care for your company that will put you in prime position to meet your goals.
I love this description of why a budget is an essential tool for every business from Victor Butcher, who advises small businesses:
“It's like a roadmap for your company. You need the roadmap to understand where you're going with your business."
Let’s point you in the right direction.
As you’re likely in the midst of getting your financial information for 2019 gathered, it’s the perfect time to use those numbers as a basis for the year ahead. Listen, your budget is just comprised of pieces of information that you already have. This is a process of helping you put it together in a meaningful way.
I’ll walk you through the basics in 5 easy steps.
1. Figure Out What You Bring In
The premise of budgeting is figuring out how much you have in order to spend within that limit. So that’s the first critical step. How much do you bring in each month? You’ll also want to think through all of your income sources to help guide you here.
Here are some examples to help you with this of potential sources of income:
2. Know What Goes Out - Fixed Expenses
Now that you know what you bring in, let’s determine what has to go out. What are the fixed expenses for your business? These are typically things like your monthly internet payment, staff salaries, rent, and your accounting software, like Quickbooks or similar.
To refresh your memory, look at your bank statements from the past year to determine how much you pay in fixed costs.
Here are a few more examples of your fixed expenses:
3. Time to Look at Variable Expenses
Now that we know our fixed expenses, we turn to our variable expenses. These are expenses that don’t have a set price tag each month. These costs can go up and down depending on your needs and finances, like your marketing budget.
Variable expenses are often ones that you can scale up or down depending on how your business performs. If your organization brings in more than you forecasted, you can spend more in this area to accelerate the progress of your business.
If you're still not sure what variable expenses you have, it can be things like:
4. What You Know You Need to Spend
The word “budget” doesn’t mean that you can’t have anything you want for your business. It just means that you have to plan it. What do you want, or know that you’ll need to spend in 2020?
Is there a conference you’ve been eyeing? Know that your current computer is about to go the way of the dinosaur? Add these one-time expenses to your budget so that you can plan on how to pay for them.
5. Create Your Budget!
Now that the essential components are in place, you’re ready to do your budget! If you’re not an Excel whiz, never fear--there are some great templates out there for you to use.
Once you pull this all together in one place, you will feel so proud of yourself, I promise! And more than that, you will have the confidence that you are setting your business up for success in the new year by always having your finger on your company’s financial pulse.
I am so thrilled for you. Best of luck to you and with your budget for 2020!