Managing your own business can be daunting, especially when it comes to finances. That’s why product manager Vicki Bracey from Mettle – a free digital business account made for self-starters – is here to guide you through setting a budget for your small business.
Whether you’re only just starting out or you’ve been running your business for years, it’s never too late to start budgeting. Budgeting is all about forecasting your overall sales, expenses and ultimately understanding how much you are likely to earn and how much you have to invest in you or your business. It helps you to identify in advance opportunities to grow your sales or reduce costs, and it’s important when you’re looking for a loan or funding.
When you first set your budget, it can feel a bit like guesswork, but it’s a starting point. Here are some top tips to set up your budget for your small business.
First off, it’s important to figure out what sales income you expect to receive, whether that’s from selling your product or your time as a freelancer. If you’re unsure you can look at what you currently earn each month and if your business is seasonal you might want to adjust your sales income to reflect months where you have more or less sales.
You’ll also need to think about how you will achieve it. What’s your sales and marketing strategy? Do you need help with it? Do you need to invest in order to generate sales leads or can you get them organically? Do you have the time to do this? There are some inspiring Facebook groups and communities online that you can join which can help kickstart some great relationships and potential work off the back of this.
You need to also look at your business costs (expenses) and understand what operational costs your business will have. Budgeting for the income side might be the fun part, but without understanding your outgoings you won’t be able to understand if your business is making a profit or a loss (your income minus your expenses). It can be beneficial to look at them in three groupings:
- Essentials or fixed costs
- Variable costs
- Investments in yourself and your business
Essentials or fixed costs usually stay the same from month to month. They will be different for everyone, depending on your business and your own skill set, but are the essential things you need to pay for to keep your business running. They can include things like rent, loan repayments and payroll costs.
An accountant, for example, can also be seen as an essential cost, but not everyone will use one. It’s possible to do your own self-assessment if you feel confident, but some people just prefer to delegate or outsource this so that they can concentrate on their business, saving them time and stress.
Variable costs are the inputs that will change based on your business activity or sales. This could include raw materials to make the products you sell or utilities & fuel which may change depending on how many hours you work.
Investing in yourself or your business
You should always invest in yourself and your business. Courses, training and coaching are all investments that can really boost your income in the long term. They help with confidence and mindset, but you might have to think about how they affect your bottom line when you set your budget.
You might also want to plan costs into your budget for one off investments in new machinery or hiring a new member of the team so you can grow.
Using your budget
Following the first three steps will show you your expected Income, Expenses and therefore profit or loss for your business. Once you’ve done that, you need to make sure you’re using your budget and regularly checking in to see how you are doing compared to what you expected. Are you on track? If not, where do you need to make changes? Do you need more sales? How will you get them? Can you cut back on spending?
The best and easiest way to keep on top of your finances is by using accounting software. There are lots of options, like FreeAgent, Quickbooks or Xero. By connecting these to your Mettle app, your transactions can easily be shared too.
Continue setting goals
A budget isn’t a one off exercise and won’t be the same each year. At the start of your year, look at last years’ budget. Have a look at how you did against your target and think about what adjustments you had to make throughout that year. Think about how often you achieved your budget and what, if any improvements can be made for the new year. Try to set yourself goals to continually improve your budgeting.
Hopefully this guide will help you get your budget in place for the coming year and allow you to think about specific financial goals you want to achieve. Think about what you want to change, what do you want to improve and what is or isn’t working. Thinking about these five steps and putting them into place can help you run a successful business. Good luck!