Learning How To Set Up A Budget
For your small business, learning how to set up a budget is imperative.
That’s because, if your business is to succeed, you need to strategically think through your finances to only maintain profitability but to grow. With a proper budget, you can do exactly that – setting the framework for success and then executing it.
In this article, we will cover:
- Setting budgeting goals
- Building a plan that works with your budget
- The ideal way to set up a budget
Business Budget Goals
The first thing that your budget requires is a direction. Generally, businesses will want to be successful – but your goals need to account for that and define them.
If you are setting up a budget for the very first time, setting your goals can help give you valuable insight into where you see your business five, ten, or twenty years down the road.
So, what is your budget needed for? If you are just starting out, your budget may help:
- Outline the operating costs of your business/concept
- Attract the attention of investors
- Pave a path to profit for your personal success
At the same time, it also gives you the opportunity to understand some of the additional costs you may not have considered. It can even help you make cuts and reduce costs to ease your path to profitability.
Goals are essential because they not only give you something to work toward but help set the strategic tone and guidance of your business. When you have goals related to your business, it helps your budget gain focus and clarity.
Building Your Budget’s Plan
Having a plan to stick to, in terms of both revenue and costs, is imperfect.
In this sense, there are essentially two methods to develop a strong budget:
- Bottom-Up Budgeting
- Top-Down Budgeting
Let’s walk through each and break them down for you…
This method relies on starting from the bottom to build your budget.
This means beginning with your fixed costs, then your variable costs, and reconciling it with your revenue (how much you intend on making).
Make sure that you check your breakeven point, and if it’s not in line with your expectations (or your goals), you may need to re-formulate your budget accordingly.
Another popular method is going from the top down.
Essentially the opposite of bottom-up budgeting, you first begin with your revenue forecast, followed by variable costs, and then adding your fixed costs.
This is all in hopes of meeting your profitability expectations. The key here is a proper revenue forecast, which will aid you in checking feasibility and adjusting as needed.
The Essential Elements of Any Budget
If you are learning how to set up a budget for the very first time, there are some necessary terms and components that are definitely going to help.
At a basic level, your budget should always include:
- Your Revenues
- Your Costs
- Your Profits (Cash Flow)
Considering cash flow, this is important not only in terms of paying yourself – but, it helps understand if and when you have the free cash to re-invest into your business.
You see, one of the keys to a strong budget is understanding when you may have the opportunity to build your business to an even greater extent. This may include:
- Hiring more staff
- Introducing new products (and developing them)
- Purchasing new equipment
- Seeking out a new/different space
A key part of setting up a budget is not only outlining what you are currently dealing with but the ways in which you can grow your business to do better.
Your Budget’s Optimal Timeline
Most of the time, your budget will include your financial picture and outlook for the year.
From there, typical budgets are divided into month-by-month increments. This way, as each month goes by, you can properly tabulate your results.
That said, how do you know the information you are working with is accurate? Budgeting is difficult, and accuracy is imperative.
Here’s a handy tool that works…
Board for Budgeting
We have introduced Board as the solution small businesses can use to help take advantage and take control, of their financial picture.
How does it work? With Board, you can:
- Understand results
- Set goals and plans
- Monitor progress
This mobile-first platform has been designed specifically for business owners. You can gain access to not only top-level indicators, but you can easily perform a deep dive into your finances to understand the performance of your business.
On top of that, you can work with milestones to help understand your business’ financial performance on a monthly, weekly, or daily basis. In terms of setting up your budget, this style of reporting can help ensure you remain on track, at all times.
Not only that, but Board helps with providing information into cash liquidity, profitability, and the growth of your revenue – with forecasting as a key tool to help grow your business.
Try Board Today
Looking to take control of your finances?
Board is a tool developed for business owners, by business owners, so that you can feel more confident and more secure in your performance.
It’s your chance to reach your goals, to make data-driven decisions, and to gain a firmer hold on how your business is working – and what could be improved.