Managing your finances can seem like a time-consuming task, but making the effort to consolidate your cash flow, expenses and savings mean that you can keep track of your money with ease. When running a small business, knowing exactly where you’re spending your money is essential, so that you can make changes for the better and forecast for the future.
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What do we mean by Balancing The Budget?
You may have heard the term ‘balancing the budget’ used in government terms, but we can use it for our own budgeting methods too. It is a way of organising your income, outgoings, savings, and anything left over each month. The point of balancing your budget is to ensure that there are no outstanding payments that you may have overlooked, or that may need to be considered in next months budget.
When it comes to balancing your budget, you should ensure that the balance matches exactly that of your bank account and that the transactions you’ve accounted for match up with this too. You should also ensure that the figures you’ve included for your income, expenses, savings, and other spending are all accurate. You can check that you have balanced your budget correctly when you subtract all the expenses from your total, and you get zero.
How to make a budget
If you run a small business, making, and sticking to a budget is vital when it comes to achieving success. You can make your budget as detailed as you’d like – the more accurate the better, but it doesn’t have to be a difficult task. You should begin by calculating the average monthly income for the business. From this, you can take away your outgoings, like rent, insurance, tax, and supplies, as well as any savings you plan to make each month.
From this, you will be able to see exactly where your money is going, if you need to cut back, or if you could make more savings. Below, we’ll look at how to categorise your outgoings.
Labelling your outgoings
When creating your budget, you should categorise your outgoings, starting with your fixed bills. These are bills that come out of your account each month and include rent for your premises, insurance, wages, supplies, and taxes. These are your primary outgoings, that you’re going to need money to pay for each month, without fail.
Your variable expenses, or your secondary outgoings, don’t have a set cost month on month and can include factors like marketing costs, shipping, travel, and equipment. Updating your budget monthly can help keep track of these costs – they can also be cut back on if you find you’re struggling to make ends meet.
When making your budget, you should include an amount to go into your savings each month – you can set up a direct debit so that you don’t even have to think about it. As a business, it is important to have a fund put to one side that you can use for unprecedented situations. This will allow you to handle any emergencies that may be thrown at you, with as little disruption to your business as possible. For example, if a piece of tech or equipment needs to be repaired, you can pay for this or a new one so your business can continue to run smoothly. It is also handy to have in case you find yourself in financial difficulty which means you have a better chance of avoiding debt.
Tool and tips for budgeting
Once you’ve finalised your budget, you can reflect on it and decide if you need to make any changes, for example, could you cut back on certain variable expenses to save money? Or do you need to add more to your savings each month? When it comes to keeping track of your budget, there are a few tips and tools to help with this.
If you are tech-savvy, you could choose to add your budget to a spreadsheet, so that it automatically updates, and you have a comprehensive list of figures you can refer to when necessary. You can use apps so you have access to your budget in the palm of your hand, or you could simply use pen and paper to write it down if this is easier for you.
Benefits of budgeting
Taking the time to budget in a way that suits your business means that you can reap the benefits that come along with it. Not only will you be more organised and able to keep track of what you’re spending, but you will also be able to make sure that you’re saving for the future. Here are a few other benefits that you can find when it comes to creating your budget:
- Evaluate: You can evaluate how your business is performing by looking at your budget – do you have income left over, breaking even or are you in debt? Your budget allows you to keep track and make the necessary changes.
- Set targets: Following a budget means that you can see where you need to improve and can motivate change, for example, you could set a target to earn a certain amount in a month or to save a certain amount in a set period.
- Forecast: Keeping track of your current budget allows you to forecast performance in the future. It enables you to work out how much income you’re likely to make in a year, the savings you will have accumulated and helps you to plan for any larger purchases.
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