Small businesses need to be very careful in their business budgeting. If you are not careful, you can run into serious problems and end up losing money. Minor mistakes in accounting like incorrectly recording numbers on a cheque or miscalculating budget can lead to big losses. This article will give you some tips on how to create a business budget for your small business.
- Negotiate costs with suppliers
One of the most important things when creating a budget for your small business is negotiating with suppliers on prices and terms. The more information you have about each supplier, the better off you’ll be when it comes time to make a purchase decision. This way, you know exactly what it costs them to provide their services, and they know that they have an opportunity to make some money off of your business if they provide good service at an affordable price. Negotiate with suppliers for lower prices on products and services, especially when buying in bulk amounts. You can also negotiate for discounts on shipping charges or delivery dates, or for lower freight rates when shipping abroad.
- Estimate your revenue
It’s important to know how much money you’re going to make before you start a business, but it’s also important to know how much money will be made. You need to be realistic in this step, because if you’re not realistic, then your business will fail. If you have no idea how much money your business is going to make, then it won’t matter what kind of product or service you sell — it won’t be worth anything.
In order to estimate your revenue, you’ll need to know what you currently sell and how much it costs you to produce it. The first step is to take a look at your sales figures from last year (or any other time period). Then, add up the total number of items sold during that period, and divide it by the total number of days in the year. Use this figure as a guide for how many items will be sold during each month of the next year.
This isn’t a perfect method for estimating revenue — especially if there’s been an increase or decrease in sales volume — but it’s a good place to start.
- Analyze costs
The first step in creating a business budget is to analyze your expenses. This is how you will know what your business needs to cover, and how much you need to earn in order to do so. You can either do this yourself or hire a professional accountant who can help you with the task. This is the step where you prepare an indirect and direct expense list. Identify your business’s costs, both fixed and variable. Fixed costs are those that don’t change based on the number of products or customers you have. Variable costs are those that rise or fall depending on the number of products or customers you have. For example, if you rent a warehouse to store inventory, you have a fixed cost for space in the building, but your variable cost will depend on how many square feet you need to store inventory.
- Find out your gross profit margin
The gross profit margin is the difference between revenue and cost of goods sold. It’s calculated by subtracting the cost of goods from revenue and dividing the result by revenue. Estimate your gross profit margin by adding up all the costs of producing one item and dividing that number by the total cost of producing that item. For example, if you make a product and it costs 10 to make and 20 to sell, your gross profit margin is 20%. You can use this formula for all types of businesses, but small businesses usually have lower margins than larger ones do because they have less overhead and more competition from others selling similar products or services. If you’re trying to estimate your gross profit margin on a product line, be sure to include all costs. The only way for your company to succeed is if you have an accurate idea of how much money you’re making from each product or service.