Small business budgeting mistakes to avoid
- Don’t forget to deduct sales and income tax from sales revenue
- Some jobs go wrong, and some inventory gets broken so build in contingencies
- Remember to calculate how much interest you’ll pay on loans
- Factor in costs to insure your business against liabilities and disasters
- Put money aside to cover depreciation of assets like work tools (because you’ll have to replace them eventually)
"Reduce financial risk by validating your business idea first. For example, you could open a pop-up store first, instead of paying for the fit-out of a retail store.”
Meryl Johnston, Bean Ninjas, Xero gold partner
Creating a financial plan for your business
Try not to freak out about this red part of the graph:
That’s just part of being a startup and will appear in most small business budgets. It will take time for customers to find and trust you, so sales will be slow in the beginning. Meanwhile you’ll have a lot of set-up costs to contend with.
Include a section in your business plan on how you’ll make up the difference. Will you dip into personal savings? pitch investors? go to the bank? or turn to family and friends?
The difference between a budget and a forecast
Budgeting and forecasting are often treated the same, but there are important differences. Small business budgeting shows how you expect the business to perform over a given period. Forecasts use real-life sales and cost data to show where things are actually headed.
For obvious reasons, you want to know if the two are seriously out of whack. So check your budget against actual business numbers regularly. That way you can fix problems before they get too big, and spot opportunities before they’re missed. Plus the exercise will help you get better at estimating costs and income for the years ahead. Small business budgeting and forecasting go hand in hand.
“It’s important to not only budget for costs that occur monthly, but also the costs that happen once or twice a year. Don't get surprised by a big lump sum insurance payment, for example.”
Cristina Garza, Accountingprose, Xero gold partner
Chapter 4: Pricing strategies and the COGS
Set prices that will make money without scaring off customers. Learn how to use COGS and pricing strategies to keep your business profitable.Read chapter 4
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