Budgeting is at the heart of any successful business. Growth drives businesses, especially in the beginning, but it can be hard to account for the expenses associated with that growth, so a budget is needed to help ensure long-term sustainability. Growing too quickly or too slowly can destroy a business before it gets started. Similarly, a great business concept with no revenues will quickly fail.
But for many, creating a true budget can be intimidating. Taking a job or a hobby and turning it into a business does not mean you are suddenly a business expert. However, creating a business budget can be as simple or complex as you would like.
A basic budget simply needs to consider current revenues and current expenses. Revenues would be income from any source, such as sales, lease agreements on property or equipment, interest on savings, or any other source of income into the business. Expenses are simply bills that are paid. These can be rent or a mortgage, utilities, salaries, website hosting, vehicles, marketing costs, office supplies, travel, and so on. Then, you take the revenues, subtract the expenses, and you will know if you are profitable or not. And you will also have created your first budget.
From here, you will see if you are cash-flow positive, meaning you earn more than you spend (and this is where you hope to be). If you are, you can then start to consider costs associated with growing. If you would like to increase your marketing budget, purchase new equipment, purchase properties, expand your staff, or expand in any other way, you now have a basis for determining how much you can afford and when you can afford it. This way, rather than assuming you can afford a large expansion, you can be confident the costs will be covered. And if they won’t, you won’t expand before you are ready and spend all of your cash leaving your business unprofitable.
While this exercise may seem trivial and easy, it is the most important thing you will ever do for your business. So if you don’t already have a business budget, go out and make one. It should take no more than ten minutes but will save you a lifetime of heartache if it allows your small business to sustain itself.