Small Business Budgets – Part I

A budget can be a very helpful tool for any small business.  Creating a budget may feel like a daunting, time-consuming task, but it doesn’t have to be.   The best place to start is by reviewing the last twelve months of financial statements.  Review your revenue for the last twelve months.  Do you feel you will sustain these numbers over the next twelve months?  Perhaps, based on new marketing tools or sales skill you have acquired you are projecting increased revenue over the next year.  So, a budget is a great place to quantify those projections by creating revenue goals.  So, for instance, based on your new website and the sales training you’ve done you feel a 20% increase in revenue is a reasonable goal.  So, take the revenue numbers from the last twelve months and add 20% to each.   You now have basic revenue targets for the next twelve months.  You should also update forecasted revenue based on actual knowledge you have of upcoming sales increases or decreases.  Maybe a client ordered 1000 widgets last quarter but they have notified you they will need double that next quarter. That increase should be included in your forecasted revenue for next quarter.  Now you should consider your direct costs.  If you are projecting an increase in revenue then you must project an increase in direct costs as well.  You should also consider what makes up your direct costs.  Are the prices of any of these items going up over the course of the next year?  Include these projections in your budget as well.  Once you have completed your revenue and direct cost projections you will have projected gross profit over the next year.  Next week we’ll talk about budgeting overhead expenses.