How to Create an Effective Budget

Creating a budget for your small business doesn’t have to be a complicated process.

One of the
challenges of many small business owners is setting a budget. And it’s quite
understandable considering that many of them are experts in their line of
business and not in budgeting or accounting. This is also one of the reasons
many SMBs close their business within five years. 

What’s the
best way to create budget? Here are easy-to-follow tips to get you started if
you are new to budgeting and accounting

1.      Remember that it’s an ongoing process

Your budget
is a working document. It’s not something you create one time and leave it as
it for months. As your business grows, you may have to tweak your budget, too.  

2.      Put together all your income sources  

A good
budget starts with knowing how much and where your income is coming from. This
way, you’d know how much money you could allot for your operating expense. 

You could
start with your sales figures then add other income sources if you have any. 

3.      Add a budget safety net

A budget
safety net or contingency fun ensures that you’ll have money for emergencies
and unforeseen costs. It’s especially useful when budget is tight and you
suddenly need to shell out money to fix equipment, or replace damaged

4.      Start with easy to compute expenses

A budget
document doesn’t need to be complicated. In fact, you shouldn’t make it
difficult to understand. The more complex it is, the more likely that you and
your team won’t refer to it.

Start with your
fixed costs. These expenses don’t change in value over time. Examples are rent,
salaries, accounting and legal services, and insurance.  If you have scheduled one-time spending,
consider adding this to your budget document, too. Examples are repair and
maintenance, new equipment, office supplies, and furniture.

Once you
have all these sorted out, you may start thinking about adding variable
expenses or costs that change in value, like raw materials, commissions, and
marketing costs.

Creating a
budget for your small business doesn’t have to be a complicated process. Start
with a simple document and tweak it as your business grows. You could also
consider reaching out to accountants or business consultants to help you set up
your budget.


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