Image by Gerd Altmann from Pixabay

By Henry Brown

The first thing you need to do when you start a new business is to get a handle on your finances. You have to be smart with managing money if you want to start turning a profit, and that means being able to budget properly. If you don’t have a budget and take steps to save where you can, your expenses are going to end up eating into your profits. When you create your first budget, it might be as you’re growing your business or it could be before your business even gets started. It’s smart to have even a rough estimate of how much it costs to run your business so that you know it’s viable.

To create a budget for your new business, follow the steps below.

Know how much money is coming in

Before you can decide how much to spend, you have to know what money you have coming in. Of course, if you haven’t launched your business yet, this will need to be based on estimates and projections. But if you’re already earning, you need to know your income and your different sources of income too. Some businesses may have just one source of income, while others can have a few income streams from different products or services. For example, a freelance graphic designer might work with clients to provide design services but they might also sell an online course teaching people graphic design.

Research unknown expenses

If your business is up and running, you’ll have some idea of your expenses and what it takes to run your company. However, there are likely to be various unknown expenses that you might need to take into account either now or in the future. You can research how much you’re likely to spend on various expenses, from marketing to staffing. Tools like SEOCalc can give you estimates for key expenses, in this case for SEO marketing costs. Gathering quotes or even reading articles and statistics about average costs for certain things can help you out too.

Work out your fixed costs

When you’re creating a budget, starting out with your fixed costs makes sense. These are the expenses that don’t change from month to month. They’re predictable and they might be the sort of expense that is slightly more difficult to reduce. Your fixed costs will include things such as rent, some utilities, payroll costs, website hosting, and software subscriptions. Make a list of these costs and add them together so that you know what your fixed costs are and how much you have left over after calculating them. You might also consider ways to save, such as switching to a new internet service provider.

Know variable costs

After your fixed costs, consider your variable costs. These are the expenses that can change and fluctuate. They include costs such as utilities (electricity, water, etc.), shipping costs, sales commissions, and other expenses that can be different from month to month. As these expenses are variable, you can’t work out a set amount that you spend each month, but you can probably estimate a minimum and maximum that you are likely to spend. By keeping track of these expenses, you’ll get a good idea of how they fluctuate and what affects them.

Take one-time spends into account

Your business will also have one-time expenses that you have to consider. This could include something like buying new equipment, which you don’t do regularly but which can be a significant part of your spending. If you don’t take these costs into account, you won’t have the complete picture of how much your business is spending. You could have the need to make a purchase of a new product or service but not have the available funds because you have forgotten to budget for it.

Adjust your budget as necessary

Once you have a good idea of your monthly and yearly expenses, whether worked out from existing numbers or projected based on research, you can make changes to it as needed. As your business grows, you might grow your budget and spend more on your business’s expansion. You might also review your budget to look for ways to save so that you can reduce your spending and increase your profits. Reallocating funds from one thing to another can be smart too if you want to make sure your budget is working hard.

Your new business needs a budget, so don’t leave it too late before you create one. It will help to give you full control over your finances.

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Henry Brown is an online marketing executive. When he isn’t talking shop, he’s roaming the streets of London, uncovering the extra-ordinary in the ordinary.