How To Create a Business Budget 2022

Let’s dive into the 5 steps you need to take to create your budget in 2022.

As a business owner, you make many decisions about your business at the start of every year – from marketing, to hiring, and everything in between.

However, one of the most important areas for any small business is the one that oftentimes we neglect: budgeting.

“Budgeting is your roadmap. It’s a financial expression of your future growth.”

Creating a budget can help you:

·Make smart and informative decisions. Understanding the financial health of your business allows you to make sound decisions on how to take the business to the next level.
Get the finances to grow your business. By having a budget, you can easily identify your target revenue, and examine your financing options to achieve your target.
Communicate your values to your team. Budgeting is a great team building exercise. Get your team involved in building the budget, this will energize everyone on your team to help achieve your goals.
Cut unnecessary expenses. Budgeting is a key strategy to cut wasteful expenditures. It can help you to think outside the box and find the right resources for your company.

Let’s dive into the steps you need to take to create your budget in 2022.

Step 1 – Project your sales and identify your income sources

Before you even start building your budget, you need to sit down and figure out two things:

·How much money your business will bring in, and
Where the money is coming from.

Additionally, the timing of income is a great aspect to understand as it can help you manage your cashflow

Step 2 – Understand Your Fixed Costs

Fixed costs are generally predictable and remain constant. These costs can be harder to change – albeit, not impossible.

And they are important to understand as they usually take up a hefty chunk of your revenue each month.

Common examples of fixed costs are rental, leases, salaries, property tax, and insurance.

Step 3 – Determine Your Variable Expenses

Unlike fixed costs (rent, property tax, insurance), your business has many expenses in the budget that will vary month-to-month.

Variable costs can make budgeting more complicated, however it’s important to come up with a rough estimate for your budget. Taking a look at last year’s variable costs over a 3–6-month period will give you a great starting point.

Common examples of variable costs are materials and supplies, shipping and delivery, software, and some labor costs.

Step 4 – Assemble Your Budget

Now that you’ve done the initial legwork, it’s time to assemble your budget.

We recommend using a third-party software, like QuickBooks, to help. QuickBooks offers easy-to-use tools to build your budget based on your accounting data.

Start with your historical data and build from there.

Step 5 – Track Your Budget

Once you’ve built your budget for the year, it’s important to track it consistently.

Don’t file it away and never look at it again!

Tracking your budget each month (actual vs. projected) is a great way to gauge the financial health of your business, and let you know whether or not you’re on track.

Budgeting is one of the best tools you can use in your business to improve your finances, manage cash flow, and ensure the longevity of your business.

Here’s an example of a business budget that you can use.

Get The Help Of An Experienced Accountant

If you need help creating a budget for your business, or managing your cash flow throughout the year, an experienced accounting consultant can help.

You can book a complimentary 15-min call with us to get started by using our calendar here.

Until next time!

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