The following is a guest post to EB Band from Pat Mackaronis. Pat is the Director of Business Development for New York City-based social network Brabble. In this post, he dives into small business budgets, and how to properly understand the financial structures of business ventures.
Tally up these figures carefully. Put the sum in the plus column. Now add in any other income connected with the business for the month. Remember, the object is to stay ahead of expenses. Precisely, expenses should not exceed your monthly income. A plus figure should remain at the end of each month. Use this money to invest back into your small or home business.
Now list all the expected fixed expenses for the month. These are the expenses that are regularly paid each and every month. These are not the luxuries or impulse items you might buy like an executive size desk chair or over priced office furniture or expensive art work. Fixed income expenditures might include your taxes, mortgages, insurance, payroll, car lease, furniture lease, equipment lease, advertising, marketing, office supplies.
Now tally up expenses. Place expenses in catagories. Such as debts, payroll, overhead, advertising, marketing, equipment. Look for spending patterns. Where is the money going? Is the overhead out of control. Majority of business money going to payroll? Spending too much on leasing equipment? Office supplies? Too much on travel expenses, even business lunches? Are the expenses more than inocme? Less than income? Use the findings to learn where the money drain is spiraling out of control.
For example, if the monthly small/home business income is $5,000 and total expenditures are $6,000, a financial problem exist. A problem that requires immediate action before the business is over it’s head in financial trouble. The business will never realize a profit until this problem is resolved.
When budgetingo save or invest back into your business remember you don’t always have to cut out an expenditure all together. Experts suggest trimming back to cure the financial drain. For example, Instead of hiring two full time staff members, hire one part time helper. Or instead of purchasing the most expensive supplies check out the local discount office supply stores. Exaimine the advertising budget. Perhaps this is where the money drain is strongest. For example spending $500 per month on advertising might be too much for any new home business budget. Find free advertising methods like word of mouth, or handing out flyers, business cards, brochures, writing a press release. Or place small ads in local publications instead of expensive ads in larger newspapers or magazines.
Use these findings to predict expenditures throughout the week, month, or even year. Of course this depends heavily on the business. If the business is seasonal. For example, around the holidays Business Owner X’s catering business explodes but is slow the rest of the year. Or Business Owner Y’s landscaping business best profits are during the spring, summer, and fall. Profits drop dramatically during the winter. The business owners should review and adjust the numbers taking into account these seasonal fluctuations.
Finally, Business owners should always seek professional help from financial advisors before major problems arise. Also check out the SBA website for more free information on planning a budget for any home based or small business.