You wouldn’t set out to drive from Sydney to Perth without a plan would you?
Yet every day thousands of small business’s run without their business without budgeting planning.
When starting a long road trip there would be things you do before you start like getting the car serviced, filling it with petrol (maybe organise additional fuel), get a map and work out the best route, get some supplies such as snacks and water.
Along the way, you would regularly check the petrol & oil so you don’t run out on the 1200 km stretch across the Nullabor, you would also periodically check with the map that you have on the current road until you reach your goal, Perth.
Just like planning a trip across the country, there a few things you need to do before you embark on your annual business journey.
A budget is a road map to succeeding in business. If you don’t know where you want to go, and the twists and turns on the way, how are you going to get there?
No budget is going to be 100% accurate each and every time you create one .After all if our country’s leaders can’t get it right, then how can we get it right every time?
However, like anything in life the more times you do it, the better you will become, you will be more in tune with your business and create better budgets, and more importantly, manage and grow your business better.
A budget does not have to be complicated and Microsoft’s Excel ™ can be an excellent tool to quickly do the calculations, or you can use pen paper and a calculator.
When creating your budget, there are 3 main areas.
Income, Direct Costs and Overhead Costs. When creating you need to ask yourself some questions about each of the areas.
- What income do I want to achieve each month i.e. $50,000 per month.
- Are there periods when the income is lower or higher? Is it a seasonal business where the income is higher in the summer compared to winter or is there an annual shutdown over Christmas?
- What are my expenses in earning that income? What is the cost of buying product or manufacturing it etc? If your income is $50,000 per month, and your profit is 50%, then your direct costs will be $25,000 per month.
- Accounting & Legal Fees
- Advertising & Promotion
- Wages & Superannuation
- Motor Vehicle
- Bank Fees
- Printing & Stationery
- Freight & Cartage
- and any other categories you want to break it down to.
- You will then need to ask yourself, is the cost spread out over each month, or are there periods I will be paying most of those expenses? Will I have an annual shutdown over Christmas? If so, then the wage costs will be higher in December, than they will be in January.
- Do I pay my insurance monthly, or does it come only once per year?
Overhead or fixed costs
What are my other costs?
For each month you will list all the Income, less cost of sales expenses, less overhead expenses to give you a monthly surplus or deficient. The result will look something like this table below, which we call a budget income statement or budget profit and loss statement.