A budget is the most important tool a business woman can have in her toolbox. We understand, for some ladies the word ‘budget’ is about as appealing as the word ‘diet’. It seems to implies what you will go without, rather than what you will achieve. Tanya has a different philosophy. She sees a budget as the foundation to successful financial management. It’s a road map to achieving business success. Without one you are flying blind.
Tanya has a different approach to setting a budget – she builds a budget from the bottom up. Start by determining what profit you want to make. Then review all expenses, looking for opportunities to reduce costs. Your target revenue is determined by target profit plus all business expenses. Tanya argues it should be bottom line profit that drives the top line revenue.
For example: this year you want to make a net profit of $60,000. Your operating costs sit at $150,000 and direct costs are around $230,000. To achieve this profit your annual revenue needs to be $440,000.
Here’s four simple steps for building a business budget:
Step 1: Net Profit
Decide how much profit you want to make in the next 12 months (ensure you include a market based salary for yourself as business owner).
Step 2: Operating Expenses
Look at every operating expense like car registration, phone and internet, insurances. What can be reduced, removed or renegotiated? Small changes to business expenses can make a big impact.
Step 3: Direct Expenses
These are costs which directly contribute to making or selling your product or service like wages, freight. It is harder to reduce direct expenses but look for saving measures.
Step 4: Add Net Profit + Operating Expenses + Direct Expenses to get your Target Revenue.
Break this target revenue down by month (consider any seasonal adjustments).
Now the fun begins. Is this revenue target realistic? Start by validating the number by reviewing historical data. What were your revenue targets 12 months ago? Can you achieve this year’s target?
The process of building a business budget lends itself to strategic planning. How are you going to achieve the revenue target to ensure the net profit? Do you have the capacity within your team to achieve this revenue target? Do you need to review your pricing? Will you need new revenue streams?
Our mission is to educate, inspire and empower women in business by improving your financial literacy. If you need help with building a budget, call the Acceler8 Team on 1300 222 353 or email firstname.lastname@example.org. The first task we tick off in the Acceler8 Academy Program is building a budget for your business