#2 Profit Margin
Now that you know your total costs, you can determine how much revenue you need to cover your expenses. Of course, you want your profit to be in excess of your costs, but by how much? This is your profit margin.
“Gross profit margin is a financial metric used to assess a company’s financial health and business model by revealing the proportion of money left over from revenues after accounting for the cost of goods sold (COGS),” according to Investopedia. “Gross profit margin, also known as gross margin, is calculated by dividing gross profit by revenues.”
Note that your cost of goods sold includes material costs to make your products, as well as the labor costs to pay your staff.
Now it’s time to figure out how you’ll maintain that profit margin, and determine what happens if you don’t. Can you afford to keep staff or your office? With a plan, you’re ready to take action when and if the time comes, rather than being caught off guard. Learn more about calculating profitability ratios.
#3 Revenue Forecast
Include an educated prediction of your revenue when creating your first business budget. Your revenue forecast should include total sales and price per product. To find this information, you’ll need to conduct market research. This provides insight into how much you should charge, average revenue for your industry and more, will help you accurately forecast revenue and set profit goals.
If you’ve never done market research before, check out our simple guide, “How to Do Market Research.”
2. Get Your Taxes in Order
As a small business owner, there are a few things you need to know about taxes and budgeting. First, you will need to pay estimated taxes multiple times a year based on income and revenue. If you miss these payments, you can be subject to a hefty fine. Build these estimated tax payments and due dates into your budget so you know how much to put away in between tax periods. Use this tax calendar to get all of your dates set.
You’ll also qualify for deductions and write-offs that will save you money come tax time. “Although startup expenses differ by industry, most business types can deduct investigational costs related to researching markets and analyzing products.
Maguire continues, “Additionally, startups can deduct costs accumulated before they open for business, such as training employees, attending trade shows and seminars, locating suppliers and advertising to potential clients.”
Keep track of all expenses and receipts, both online and hard copies. This will allow you to prepare for tax season and the unexpected tax audit, if that should happen to you.
3. Set Financial Goals
What’s the destination on your financial map? Are you planning for a big expansion, saving for new hires, or just aiming to keep the lights on during slow months? Setting clear financial goals gives your budget direction and purpose. Think both short-term (a few months from now) and long-term (the next year or beyond).
Question: How can you hit a bullseye if you don’t even know where the target is? Be specific! Your goals should be clear, measurable, and aligned with where you want your business to go.
Example: Maybe your goal is to save $10,000 over the next year for a new piece of equipment, or perhaps you aim to trim unnecessary expenses by 20%. Whatever it is, write it down!
4. Plan for the Unexpected
What if a major client suddenly decides to part ways, or your essential equipment breaks down? Your budget isn’t just about day-to-day operations; it’s also your safety cushion. Make it a habit to set aside some money each month for those “just in case” moments. You’ll be grateful when an unexpected event happens (because trust us, it will).
Question: Isn’t it better to have it and not need it than to need it and not have it? Aim to build an emergency fund that covers at least three to six months of your essential expenses.
Example: If your essential monthly costs—like rent, salaries, and basic supplies—total $5,000, you’d want to set a target of saving $15,000 for emergencies.
5. Review and Adjust
A budget isn’t a set-it-and-forget-it document. It’s a living, breathing plan that needs regular tweaking. Make it a routine to review your budget monthly and ask yourself: Is it working? Are you hitting your spending limits? Are you on track to meet your goals? If not, don’t stress—adjust! It’s far better to tweak your budget than to stay stuck in a plan that no longer fits your business.
Tip: Use tools like the Billdu app to make tracking and adjusting your budget super easy! The more you stay on top of where your money is going, the more you can steer it where you want it to go.
Example: Maybe you’ve overspent on marketing but underspent on utilities. No worries, adjust your budget to reflect these real numbers better.
6. Choose the Right Tools
You can do you entire budget manually. With technology, however, there are a variety of resources and tools that will guide you along the process. Here are a few for getting started, with an option for business owners at every stage of the budgeting process.
● Templates: Keep it simple by starting with a downloaded budget template that will guide you through the process manually. If you’re a hands-on learner, this may be the best place to start.
● Simple budget calculator: Next, get some basic numbers in place with this simple budget calculator. The only details you need are: money in and money out. You’ll see how much you’ve saved or over-spent, giving you a benchmark for improving in the coming months.
● Automate: Finally, check out these 10 programs and apps for business budgeting, all of which will help automate the process as you move forward.
