The ability of a small business to survive in the business depends on both external and internal factors. External factors are factors that we cannot control whereas internal factors are more predictable. One internal factor that needs to be considered is how a small business makes a budget or called financial budgeting. Budgeting is a process that requires teamwork, both in planning and implementing it so that operations can run effectively. A budget is usually made per year as a perimeter that must be followed in managing finances. Seeing the importance of budget planning, let’s look at a few steps in making a budget for a small business.
Understand the basics of budgeting
Before entering into the main topic, namely budget planning, an entrepreneur must certainly understand the basics of budgeting. The budget provides an overview of expenditure plans and income predictions over a period of time. If a business can ensure that they comply with the budget, it can be ascertained that the business will reach its target.
A well-prepared budget can help entrepreneurs to stabilize their business. With budget planning, an entrepreneur can adjust expenditures and incomes so it does not lead to losses, increasing debt, and possibly the end of the business. The budget is a guide to spending, and it is also used to determine whether the expenditure is too much or still within its limits. The followings are some elements of the budget:
This is an estimation of all income from various sources in the future.
This is the fund required by your business to generate sales. This includes fixed costs (such as: rental), variable costs (such as material costs for making your product), and semi-variable costs (such as employee salaries).
Profit is sales minus total costs.
After knowing the basics of budgeting, you then need to estimate income. There are four steps you can take to estimate your income.
Consider your position
You need to consider your position in developing a business budget. If your business has been running for several years, then your consideration can be from previous data, adjusted to changes in the following year. If your business is new, then you have to make an estimate of the number of sales and product prices through market research. The thing to remember is that these income estimates are not always right. In addition, it is better to project the most realistic or the lowest possible income estimates.
Conduct market research
For those of you who are just starting out, market research is a very important. You can search for information through similar businesses around you. Make sure you get information about the price and quality of the goods or services offered.
Determine estimated sales volume
Estimated sales volume is how much you want to sell your goods or services. If you already have a contract or subscription then you can enter the number in the budget plan. If not, you can compare with the estimates from pre-existing businesses. After that, you also need to find out how to drive sales volume.
Use past data
If it is not a new business, the best way to estimate income is to look at past data. Check the factors that can cause your business to increase or decrease. You can also discuss and evaluate your business with employees who are on the field, so you can get more accurate projection.
Prepare the budget
The final step is to start making and preparing accurate budget estimates. For simplicity, you can download free templates from the internet. Besides saving time, there are lots of templates that you can customize to your needs. After finding the right template, you can start by filling in the following points:
Determine the target profit margin
The way to determine the target profit margin is to reduce total estimated income minus total expenditures.
Determine fixed costs
Fixed costs are costs which generally remain the same for a period. Examples are annual building rental fees, insurance, and building taxes. You can estimate the increase that might occur in the following year.
Take into account variable costs
Variable costs are the cost of raw materials that is directly proportional to sales. This cost is usually easier to adjust within the period.
Consider semi-variable costs
Expenditures on this are more or less stable but there is still a possibility of change. Examples are telephone, internet or employee salaries. Employee salaries are called semi-variable costs because the costs can change at certain times, for example if the employee has to work overtime and you need to pay more for that.
Evaluate budget planning
After adding these three costs (fixed costs, variable costs, and semi-variable costs), you get the total budget you need to run your business. Evaluate whether the total budget you need matches or is lower than the total estimated income. If the value of the target profit is still lower than the estimated budget, then you must make savings somewhere in your business.
Besides savings, you can also shift your business strategy. For example, you can look for a more ideal business place, create new innovations to attract consumers, or strengthen the marketing of your products so you can increase your profit. Of course, you need additional costs to do these things. If you indeed need a capital injection, you can think of applying for a business capital loan. But make sure that you have thought about how to allocate the funds and how to repay the loan.
If you are looking for unsecured loan, as a bit of information, online loan services are now available which are very easy to use. One of the loan products from Aspire is online credit cards that can give you funds at any time. In addition, they also offer a low interest rate of up to 0% if you can repay the loan within 60 days. Isn’t that interesting?
We have shared practical ways for you to develop a budget for your small business. Try to have clear and specific business goals so that the business has better planning and thus lower risk. You need to look at this budget as a plan that can change; if something happens along the way, you should change the budget to suit the best solution for your business to run.