Posted by: Robin Gronsky | December 20, 2012

What Items Should You Include In Your Business Budget?

All business owners should create a budget, whether they are start-ups or businesses that have been in existence for years.  A budget lets you know whether you are profitable and gives you guidance on how to reduce your expenses so you can take home more money.

Most business owners, when putting together a budget, include the most obvious categories – rent, electricity, salaries and other employee benefits, business insurance, materials to make your product, health insurance, internet and cell phone costs.  However, there are also expenses that most businesses do incur but they do not include these costs in their budget because they really don’t want to pay for them.

What kinds of costs am I referring to?  These can include fees for continuing education for your profession, the costs of updating your technology, market research and expenses for marketing (which can include advertising, lunches and dinners to get referral sources, and promotional items with your logo and phone number on them), trade show admission fees, and state and federal income taxes.

To get a real sense of what your budget should include, look over your expenses from the previous 2 year.  Assume that if you had to pay for it once you will need to pay for it every year.  Add in a cushion for unexpected expenses that may not have come up yet but will be needed in the coming year.  If you are a start-up, create a budget with as many categories as you can think of.  Then, show that budget to your accountant and your business lawyer.  They will point out the categories that you might have missed – legal fees, bad debts (clients that will not pay your fees), costs for using an outside payroll service, inventory carrying costs, office supplies (even if it’s just toner or ink cartridges).

Your budget is your roadmap to your business’ future.  You need positive cash flow (more money coming in than money going out to pay expenses) to stay in business, you need to know whether your business has positive cash flow at any point in time and how to adjust when you have negative cash flow (your expenses are higher than your income).  If your budget isn’t realistic, you will not be able to make the necessary changes to stay in business.

You should also prepare for the fact that revenues may not meet your expectations.  How will you deal with income that does not match your projections?  Will you be able to cut your expenses in a way that will not hurt your business?  Do you have enough savings to carry you through rough patches in the business cycle?   It’s all in the planning.

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