Do you want to increase your profits? Minimize your taxes? Avoid negative financial surprises?
Who doesn’t, right?
You can do all of those things with a simple, routine practice – a monthly budget. Budgeting is a significant part of running a successful business. As John Maxwell said, “A budget is telling your money where to go, instead of wondering where it went.”
Do you ever feel like:
- You’ve worked harder than ever, but the profits aren’t there
- You’re in a perpetual state of chaos
- You have no control or visibility over your finances
You’re not alone. It’s easy to get caught in the whirlwind of running a business. Things seem unpredictable and chaotic – creating a plan can feel like a waste of time and energy. However, there are a lot of things you can predict. And you can leave some margin for the rest. In the same way we can be intentional about how to spend our time and energy, we can be intentional about our business finances, as well. Here’s how:
- Forecast your monthly revenue. Look back at your historical monthly Profit & Loss statements and review your current year business plans and goals. Estimate your product or service revenue one month at a time. You probably already have this in your head – the key is to write it down. You can use a spreadsheet, a budget app, or an accounting software. Make an educated guess – take your estimated sales volume times your pricing/rates to forecast next month’s revenue.
- Forecast your monthly expenses. Start with your most significant expenses – most likely this will be payroll (including business owner base salary) and the cost of the goods you are selling (or the cost of delivering your services). List your fixed costs, such as rent and insurance; and your variable costs, such as marketing and commissions. Again, refer to your historical monthly Profit & Loss statements and your current year business plans and goals as your guide.
- Plan for your profits. Subtract your expenses from your revenues to calculate your forecasted monthly profits. If you’re forecasting a loss, you need to go back and re-evaluate your plans and goals and adjust your forecasts accordingly. Once you’re forecasting profits, create an intentional plan for how to leverage those profits. Things to consider include:
a. How much to set aside for taxes
b. How much to reinvest in the business
c. How much to pay down debt
d. How much to distribute to owners
I know you didn’t get into business to crunch numbers and run budgets. However, it’s well worth your time and energy to spend a few minutes today to forecast next month’s revenues and expenses and make a plan for what you’ll do with the profits. You can use our free budget template to get started.
Then, block out a few hours at the beginning of each month to review your actual results against your budget. Evaluate your results and adjust for the next month accordingly. Once established, this simple, consistent rhythm will move you out of chaos, help avoid financial surprises, and increase your profits.