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Building a new business from scratch is not a task for the weak-hearted. You need to stay on top of many things, from finding new clients to marketing to finding investors. However, there is one thing you should always prioritize, and that is budgeting. Having a detailed business budget is the key to a thriving and successful organization.
You are not alone if you do not know the first thing about creating a business budget. Many business owners cannot do budgeting, which is why they hire professionals. A CPA in Smithtown, NY, can help you determine a budget so you can focus on your goals and fully understand the spending capacity of your business.
How to set a budget for your business
- Tally your income sources.
First, when creating a budget, you need to determine how much money is coming from your business and where that money is coming from. The number of income sources depends on your business model. For example, if you have a freelancing business, you may have multiple sources of income. On the other hand, if you have a clothing store, your only source of income is your store sales.
No matter whether your income source is one or ten, make sure to tally them to get a clear picture of your monthly income.
- Analyze costs.
The operation of a business requires money. Before you create a budget, research the operational costs to keep enough money to invest in the business. You do not want to set a budget only to realize later that you need more money for your business activities. Also, keep your goals in mind before drafting a budget.
As your business expands, it will increase your revenue, as well as your expenses. Factor fixed expenses like rent, mortgage, internet, salaries, accounting services, etc. You should also factor in unexpected costs, like increased rent, equipment failure, supplier costs, etc.
- Create your profit and loss statement.
Once you have determined your income sources and analyzed business costs, it is time to prepare a profit and loss statement. People avoid preparing the P&L because of how stressful and complex the job can be, but remember you are one step away from creating a budget. Add up your income and expenses and subtract your expenses from your income.
If you get a positive number, you make a profit. If not, then your business is suffering losses. However, that is common in small businesses. Review this information and see what can be changed to correct the situation. Having a financial advisor in Smithtown, NY, can help you prevent losses.
