How To Calculate A Budget For Small Business That Works Annually

Every year, small businesses must track their sales, expenses and growth to calculate a budget. The annual business budget allows leadership to stay on top of everything, including marketing to new clients, establishing business credit, and cash flowing operations.  With a proper overview of finances, companies can make better decisions and avoid unexpected downturns. As a small business owner, the business budget that you create will directly impact the business viability and long term sustainability. In this post, we will show you how to calculate a budget for small business that works for you.

Analyze Your Revenue

To set your annual small business budget, start by analyzing your revenue. Revenue includes all sales from the business activities. You should account for multiple income streams, including product and service lines. Calculate monthly income based on the total income over the past 3-12 months. The monthly view allows you to identify seasonality, demand trends and downturns. For most businesses, your income will determine the money you have to pay for expenses, labor, growth and other essential expenses. Calculate your budget for a business by summing the total of your current income streams over a 90 day or 12 month period.

Account For Costs

Next, calculating a budget for business requires a clear understanding of the company costs. Take an account of all the operating costs within the business. Using this data, you can cut costs, find clever money saving tactics, and reallocate spending. An accurate budget should cover all the funds required to keep the business operating smoothly. These costs typically include fixed, variable and on-going costs. Additionally, you can factor in one-time costs that may be planned or unexpected. Otherwise, the business could struggle to handle new opportunities or growing pains in the future. When calculating your total costs, you can even overestimate by a percentage to give the business some protection from unexpected financial events. Certainly, start a budget for your business costs.

Assess Your Cash Flow

Next, calculate the cash flow of the business to build your budget. A cash flow positive business generates additional cash at the end of the month. Your budget can be adjusted to create additional cash flow by lowering expenses. Or, you can raise revenues to increase cash flow too. You should work with your accounting or financial professional to determine the minimum cash flow needed to sustain the business. Then, create a budget that allows you to reinvest in growth while still maintain a health business checking account. Furthermore, you must monitor this metric alongside your budget to ensure the business as enough cash on hand. This is one of the key sales dashboard metrics for every business leader. Every annual small business budget should carefully assess cash flow.

Project Future Income

Once you have your revenues, expenses and cash flow ready, create a budget for your small business based on future income projections. The best forecasting predictions use current sales activities to extrapolate numbers into the future. As you predict future weeks, months and years, it becomes increasingly difficult to predict accurately. You can use data from your existing customer base, sales efforts and market research to gauge expected sales in the future. However, you will still have to compare actual revenues with projected revenues to keep the business on track. By creating an accurate projection, you can calculate a realistic business budget to meet your annual goals for the upcoming year.

Plan For Growth

In addition to planning for predicted revenues, budget for your business growth as well. If you are successfully growing a small business, the costs associated with fulfillment and marketing will also rise. Plus, you may have to hire more employees, support staff or vendors. Additionally, the business may owe a larger portion of taxes. Calculate the additional costs that are required to support your revenue projections. If you have clearly defined goals and prepare a budget to meet those costs, you are much more likely to hit the target. Calculate the budget for your small business by factoring in the costs associated with growing the company.

Follow these steps to calculate a budget for your small business. Work with an accounting or financial professional to create a budget that works for you. Start by analyzing revenue from multiple income streams. Account for the fixed, variable, and on-going costs of the business. If possible, plant for any one-time or unexpected costs. Then, calculate the monthly and annual cash flow of the business. Using these numbers and additional business data, make future income projections. Then, add in the costs needed to meet your long term goals. By calculating a budget for small business, you can set the financial overview needed for year after year growth.

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