Budgeting Your Business

6 Steps to a Better Business Budget

Budgeting helps small businesses determine if they have enough money to fund operations, expand and generate income. Without a budget, a business runs the risk of spending money it doesn’t have, not spending enough to compete, or failing to build a solid emergency fund.

These six tips can help small businesses plan their budgets.

1. Check industry standards. Research the industry to learn what percentage of revenue should cover which costs. Small businesses can be volatile and susceptible to industry downturns. So, only look at averages, not specifics.

2. Before opening, estimate the dollar amount and revenue percentages that will cover raw materials and other costs, and list them on a spreadsheet. Include rent, taxes and insurance.

3. Remember to factor in some slack. Estimates are not set in stone, so make sure there’s more than enough money socked away, or coming in, before expanding or hiring additional employees.

4. Look to cut costs when times are tight and a bill must be paid, or when a big opportunity awaits. Look at items that can be controlled, and wait until the start of a new billing cycle to make purchases.

5. Periodically review the business. Many firms draft a yearly budget, but small companies should draft their budget more often.

6. Shop around for services and suppliers when setting budgets and reviewing expenses.

This article was originally published at Investopedia.com.

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