• January 11, 2016

How to Create a Budget for Your Small Business

How to Create a Budget for Your Small Business

Let’s be honest, the idea of creating a budget does not sound exciting. And creating one isn’t particularly pleasant either. However, it is one of the most important things to do when starting a company. It will keep you disciplined as a business owner and ensure you’re on the path to success.

At VENTUREAPP we deal with a number of finance related requests and creating a budget tends to always bubble to the top. After all you need to create one yearly and as your business grows they get more and more complicated. So it’s very important to nail the basics from the start, continue your education by reading resources like this or submitting a request to connect with finance experts.

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Let’s start with the basics – a budget is way to understand the cash flowing in and out of your business. It tracks all of the current expenses against your current revenue and projects your future expense against your future revenue. It is the simplest and most effective way to measure the health of your business.

Before you open up Excel or another spreadsheet tool it’s important to gather all of your financial data – bank statements, loan payments, lease payments, payroll expenses, utility bills, raw materials, etc. This will save you a bunch of time throughout the process.

Next, dive into excel and start recording all of your current financial information. You can also use a sample template to help get you off the ground as well. Head here for a few great templates to get you started. I recommend template 2 – it’s the most robust, yet the easiest to understand and implement quickly.

From there move on to calculating your fixed and variable costs – all of your expenses. Again head here for a guide on what consists of fixed costs vs. variable costs.

You should now have a good idea on the current state of your business, however, you’re not done.

Now, you need to make projections based on upcoming milestones (headcount growth, large sales in the pipeline, equity financing, etc) or using industry standards for growth. This will be your company’s forecast for the year and might require additional research depending on the industry. A pro tip here is to factor in some slack – economic swings happen and it’s better to have a little wiggle room in the budget. Or talk to a VENTUEAPP expert.

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Once your calendar year is complete, you’re all done… for now.

It is critical that you continue to maintain and monitor this budget. Like we said above it is a super accurate measure on the health of your company.

If you’re looking for more information on creating a budget or financial model, VENTUREAPP is here to help. We can connect your with a number of finance experts or firms that specialize in your business.