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FEATURE STORY

Build A Better Business Budget

If you’re new to small business management one of the first steps in the process is to determine a projected budget for expenses and sales. This can seem an overwhelming task, but if taken in small manageable pieces, the tasks won’t overpower you and you’ll be able to make reasonable estimates to launch and maintain your business.

Let’s start at the beginning.

Outline Expenses

Does your business require the purchase of products or goods? What are your fixed costs such as property rental, equipment, product, ingredients etc.? From here you can formulate a pretty solid accounting of costs. Don’t forget to factor in fixed costs such as electric, water, phones, internet, and other ‘operational’ expenses.

Projected Sales and Revenue

Now that you’ve formulated your anticipated expenses, the next step is to project revenue coming back in the door via sales. The rule of thumb is to project high on expenses and low on revenue, so go ahead and be conservative. Anticipate that sales will increase over time as you continue to build the brand and spread the word that your product or service is available. Start with month-by-month projections and then create quarter-by-quarter and year-end figures.

For a new business you will include any start-up funding from personal, banking (loans), investments, the proceeds from selling shares of stock, and venture capital sources. Once you have a realistic forecast of the money you anticipate having available, you can look at the potential categories of expenses and determine a realistic amount to spend in each category.

Creating the Chart of Accounts

For each money in and money going out, there should be a complete listing of expenses and income called a chart of accounts. Start by assigning each financial transaction (e.g. phone bill, electric, money from sales, interest income, etc.) an account number to help record and track the transactions. The chart is then divided into five categories: assets, liabilities, net assets or fund balances, revenues, and expenses.

To determine what accounts should be developed consider the following questions:

• What reports do you want to prepare?

• What financial decisions, evaluations and assessments do you need to make on a regular basis?

• What level of detail do you require?

• What is your capacity for tracking financial information?

There are numerous financial accounting software packages (Quicken, QuickBooks, Peachtree, etc.) on the market to help electronically manage your accounting. The programs can include as much or as little as you wish in the way of reporting and data management. A note of warning: Keep in mind that your business and need for detailed account reporting will grow. Look for a software program that can easily expand to meet your needs without complicated upgrades and platform enhancements.

Setting the budget

The key to any budget is to set reasonable spending limits to each line item while trying not to juggle money from one account to another in order keep the budget working. As the business grows and accounting becomes more intricate this movement of funds will become harder to manage efficiently. Review your budget with your accountant or business mentor and be sure that you can clearly identify each category.

Base your budget numbers on researched data and not just ‘guess-timates’. That means doing your homework by calling various newspapers, radio stations and other advertising venues for actual costs to advertise. If shipping is a major part of your business, meet with international shippers like UPS, FedEx and DHL about contract pricing based on the business’ anticipated sales. Armed with these numbers, you’ll have a better chance of meeting your budgeted goals and not breaking the bank with unexpected costs. Stay abreast of industry economic shifts. If Wall Street experts are predicting an increase in gasoline costs for the spring, be sure to budget additional funds to cover the increasing fuel surcharges from your shipping companies. Depending on the amount of the anticipated increase, you may be faced with a decision to pass along the increase to your customers. This can be done via your own fuel surcharge, raising delivery charges, or even increasing retail sales.

The Human Factor

For most businesses, salaries and benefits are one of the largest overhead expenses they manage. Will your business employ staff? Will these workers be full time, part time, or independent contractors? The Internal Revenue Service (IRS) has strict rules on what constitutes an ‘independent contractor’ and how they should be paid through your business. Check with your accountant or the IRS web site at www.IRS.gov to be sure that your ‘freelancers’ meet the criteria.

Once you determine the size of your staff, research average pay rates for each position and establish a budget for salaries and benefits. Study the workforce statistics in your area or region for comparable salaries and create a package to attract quality employees. Remember that flexibility in scheduling work hours, working from home and other ‘perks’ can compensate for a slightly lower salary, so add those to the mix when possible.

Build a Cash Cushion

As part of developing your budget, make every effort to begin savings program. A small amount can be transferred from your business checking account on a weekly or monthly basis and will accumulate over time to a sum that can be invested for future opportunities. Even a small amount saved over time can make a substantial impact on your business.

If you’re planning a new business venture, take a portion of your current salary and put it into a savings or money market account. This nest egg can help you in ways you can’t even imagine when the time comes to leave your day job and strike out on your own.

Use your budget as a guide, not a guard.

Rather than have your budget leave you feeling restricted and even imprisoned, it should act as a guide for where you want your business to take you. No budget can possibly plan for every contingency, so when things change, your budget should change too. Used correctly, the budget should give you security in knowing where you want your business to go and how you’re going to get there. It should be flexible enough to respond to shifts in the market and allow you to take advantage of real business opportunities when they present themselves.

Managing the human factor in your business is an integral component to sustaining and growing a successful organization. To learn more about how to develop your own long term ‘people strategy’, talk with a Fiducial Advisor by calling 866-FIDUCIAL or visit the web site at www.Fiducial.com.