Budgeting is a key part of running a small business, allowing you to maintain careful records and reduce the risk of overspending. However, if you don’t already have a system in place, knowing where to start may present a challenge. Here’s a closer look at the most common financial planning techniques and how they can help you better manage your money. 

How to Create A Budget for a Small Business

1. Estimate Regular Income

Look at your receipts from previous years and months, and add up the totals to determine the business's average income. Make sure to include all revenue resources, such as investments and real estate properties. This will give you an idea of the amount you have to work with, which can help you determine the best approach when constructing a budget. 

2. Subtract Monthly Expenses

Monthly expenses tend to remain fairly stable, which makes them easy to track. They can range from paying rent for the building to covering payroll. You can estimate this amount by looking at the business’ bank statements. 

Subtract the totals from your average income to determine how well you’re keeping up with payments. If expenses come out higher than your income, it might be time to make a few adjustments, such as cutting staff hours and lowering the supply order. 

3. Create a Contingency Fund

Prices have a habit of changing with the economy, which may cause a temporary increase in your expenses. If the previous estimations have shown some leftover amounts, put a portion of this money toward a contingency fund. This ensures that you have the cash to cover unexpected costs, preventing the business from sustaining major losses. 

4. Plan for One-Time Purchases

There’s always a chance to expand your business, which means you might need to purchase additional equipment or hire more employees. Setting aside a specific amount of money could boost your chances for success. Evaluate the totals that remain after covering monthly expenses and contributing to the contingency fund to figure out how much should go into savings.

Start the financial planning process today by working with William G. Molitor, CPA, of Cottleville, MO. He has been a Certified Public Accountant since 1976 and is committed to supplying the quality customer service his clients deserve. William Molitor is a member of the American Institute of Certified Public Accountants and the Missouri Society of Certified Public Accountants. He offers the latest business planning techniques and works to ensure each client's success. Call (636) 926-0502 to schedule a free consultation, or visit the website for additional information on his services.