No matter what kind of business you own, having a strict operating budget is essential. A budget helps to determine profits and losses. It also helps business owners see where they can cut costs and where there is room for investment. Depending on the needs, budgets can be created for a year, for a quarter, or for a month. But how does one go about creating a business budget?
When creating your budget, you want to make sure it’s easy to follow. A quick and easy way to do this is to create a spreadsheet on Excel. Within this document, you will want to include information about your sales goals as well as your variable and fixed costs. Make sure to start with variable costs, since these are dependent on your sales. You also need to include your actual budget, which should consist of both your projected income and your existing balance.
The easiest way to start is by determine your fixed costs, or your costs throughout the month, quarter, or year, that stay the same for your business. Rent, utility bills, payroll expenses, office supplies and maintenance all fall into this category. When you have added all your fixed costs, you can find the amounts from your bills, and it’s usually easier to round up to work with whole numbers. Add up all your fixed costs and write the total at the bottom.
Variable costs are dependent on sales, and therefore change from month to month. Postage and delivery, packaging, credit to customer, and product components all fall into this category. When you have all your variable costs written down, add up your total and write it at the bottom. Your sales goal should be greater than the combined total of your fixed and variable costs. Once you have completed several business months, it will be even more effective for you to calculate variable costs as a percentage of your sales goal.
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