It’s business budget development time! As much as I tried to make it sound fun… the words business, budget, and development don’t scream, “really good time”. But it is a vital part of running your business… and work is a vital part of #adultlife.
This is part 4 of a 4-part series on creating a business budget. If you haven’t read parts 1 – 3, I suggest you hit the back button and start at the beginning. We covered a lot in the previous posts.
If you’ve been following along, the time has come! Let’s get to work.
Now you understand budget terms, you know how much you need to earn from your business, all of your business expenses are identified, and your service rates are set. Let’s pull all of it all together to create your own business budget.
There are a lot of different ways to track your revenue, expenses, equity, liabilities, and net profit. To keep things simple, I created a spreadsheet with worksheets for each month. There is also a master sheet that includes quarterly expenses, yearly totals, and the variance between what I budgeted and the actual totals (actuals). For good measure, there is a Quick View worksheet that takes all of data from the master spreadsheet and creates pie charts and bar graphs for a quick visual of where my budget stands.
Business Budget – Income Goals
Let’s start with your income goal, using our example from SERVICE RATES – HOW TO SET THEM AND THE 5 THINGS YOU MUST CONSIDER. Each source of income should have a title and its own line on your budget sheet. For example, if you host a blog and are a coach, your income lines might be:
- Hourly clients
- Package clients
- Passive income
- Digital downloads
- Mini course
Next, you want to set a realistic income goal for each line item. Using a monthly income goal of $10,000, here is how your budget might break out:
1. Hourly clients–5 clients per week at $150/hour = $3,000/month
2. Package clients–3 clients per month at $1,500/month = $4,500/month
3. Digital downloads–50 downloads per month at $10/download = $500
4. Mini course–20 course downloads per month at $100/download = $2,000
Total revenue = $10,000
As you collect payments from your clients or customers, record the income in the appropriate line.
If you are creating your own customized spreadsheet like me, and tracking each month on separate worksheets, then pulling the information into a master spreadsheet, make sure you keep the title of each source of income consistent between spreadsheets. This will help you analyze trends in different products and/or services, and help you set realistic budget goals in future months and years. For instance, if “Hourly Clients” is recorded in row 5 of your spreadsheet, make sure it stays in row 5 every month, and on your master spreadsheet.
Business Budget – Projected Expenses
Just like your personal budget, your business will have fixed and variable costs each month. I like to split expenses into categories. I typically use:
1. Communications/Travel – postage, phone, travel/mileage, meals and entertainment, and/or utilities.
2. Contractual – advertising fees, software licenses or subscriptions like Canva, QuickBooks, Mailchimp, and/or Hootsuite or Tailwind, equipment rental, contractors such as website/graphic design, lawyers’ fees, credit card fees, and/or health insurance.
3. Supplies and Materials – office supplies, office furniture, and/or office equipment.
4. Fixed charges – rent, monthly media subscriptions, and/or professional dues.
Be realistic when you budget your expenses and be sure to keep an eye on your income. It is common for businesses to lose money in their first 3 years – but you can minimize the loss. Your income is an estimate. As you close clients or sales, update your budget. As you incur expenses charged to your business, update your budget. If your expenses start to exceed your income, you need to determine if the expense is immediately necessary. Do you have income projected to balance the expense? If not, you may want to consider deferring an expense until your income increases.
Liabilities and Equity
Typically, you track your liabilities and equity on your business balance sheet. A balance sheet shows what your business owns and owes. In my opinion, QuickBooks does a fantastic job of creating balance sheets – BUT – I like to see a snapshot of this information as I analyze my budget.
At the bottom of my budget sheet, I have a section dedicated to liabilities. My tax contribution calculation is 30% of my net profit (what I draw from the company as my Owner’s Draw). Retirement contributions are also included under liabilities.
Under owner’s equity, I include equity that I contribute to the company out of my personal finances and track any retained earnings kept in the company.
For a better understanding of the components of a balance sheet, this article is easy to follow.
When I calculate my Owner’s Draw every month, I look at my net profit, consider my tax liability, and determine how much money I want to keep in the company for future use or lean months.
Key Takeaways
Budgets only work if you take the time to update and analyze them. Set aside an hour or two each week to review your current revenue, upcoming expenses, and potential sales. Set realistic income/sales goals and take on expenses only as you identify the revenue that will cover the expense. Take advantage of free versions or free trials of software as you build your customer/client base. When possible, set aside money (retained earnings) to help carry your business through lean times. The more you understand the health of your business finances, the more confident you will become in setting and realizing your financial goals.
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