How to Analyze Your Small Business Budget
In our recent blog post, 6 Steps to Create a Budget for Your Small Business, we shared reasons why budgeting is so important for small businesses and outlined steps to create your own small business budget. Now that you’ve gathered your income sources and expenses, it’s time to pull it all together so you have a comprehensive view of your finances each month.
You’ll first want to tally your total income and total expenses. To do so, add your total fixed costs, variable expenses, and one-time spends, then compare cash flow in (income) to cash flow out (expenses) to determine your business profitability.
Are you still having a hard time envisioning what your business budget might look like? Here’s a very simplistic example of a budget to give you an idea of how your own budget might look each month:
Client hourly earnings: $12,000
Product sales: $4,000
Investment income: $500
Total income: $17,500
Payroll costs: $5,000
Website hosting: $50
Cell phone: $100
Accounting services: $100
Legal services: $100
Total Fixed Costs: $7,050
Sales commissions: $2,000
Contractor wages: $500
Electricity bill: $125
Gas bill: $75
Water bill: $125
Digital advertising costs: $750
Total Variable Expenses: $3,950
Office furniture: $500
December client Christmas party: $1,000
New time tracking software: $500
Client entertainment: $200
One-Time Spends: $2,200
Total Expenses: $13,200
Total Income ($17,500) – Total Expenses ($13,200) =Total Net Income ($4,300)
Having a clear picture of your profitability each month will enable you to make the right financial decisions for your small business going forward. For example, if you realize you’re spending more than you earn too often, you might need to cut your spending and focus on finding new business. On the other hand, if your income is usually significantly higher than your expenses, you might need to invest some of your profits back into your business, like purchasing upgraded software or equipment.
Review your business budget periodically
Putting in the work to create your budget will probably not be the most enjoyable aspect of starting your business. However, investing a little time and energy will pay off in its future success. Regularly reviewing your business budget will give you the financial insights necessary to make sound decisions for your business so you see growth down the road.
Get help with the financial aspects of your business
Many small business owners purchase accounting software that help them manage all of the financial aspects of their business, such as QuickBooks. In addition to software, a good CPA can assist in managing your budget, correcting your path when spending gets off track, and making sure you’re paying the necessary taxes for your business – while at the same time, minimizing your tax burden.
In addition to accounting software and a CPA, you need a trusted business banking partner who will listen to your goals and help you achieve them financially. Allegiance Bank’s full and flexible suite of treasury management services can help with the heavy operational lifting, making your business stronger and your job easier. If you’re ready to get started, contact us and one of our business banking associates will reach out to you.
Want to keep growing your knowledge of financial basics? Check out the Allegiance Bank Financial Education page.