Should You Budget Your Money When You Own A Business
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Should You Budget Your Money When You Own a Business?
Introduction
Creating a budget is one of the most challenging tasks when starting a new business. With no financial history to predict income and expenses, it may feel like guesswork. However, a well-thought-out budget is essential and can be established by anticipating future needs as part of any sound business plan.
Key Categories: Income and Expenses
In most businesses, finances are divided into two main categories: income and expenses. Expenses can be further subdivided into controllable and uncontrollable costs. While some business owners believe they can manage every expense, certain costs, like utilities and rent, often fluctuate beyond their control.
Controllable expenses include payroll, insurance, and advertising, which can be adjusted if business conditions change. While adhering to a budget can help maintain profitability, it’s crucial to strike a balance, as overly strict adherence might be detrimental in the long run.
Balancing Costs and Service
For the sustainability of your business, sometimes it's better to endure higher costs temporarily, like employee wages, to maintain quality service. Doing everything yourself can lead to burnout and potentially harm customer satisfaction. Ensuring your staff can handle customer needs during lean times is vital for long-term success.
Methods for Budgeting
Business budgeting can be approached in two ways: fixed dollar amounts and percentages of income. Many businesses set specific dollar amounts for controllable expenses, while using income percentages for others.
For example, a business earning $20,000 a month may allocate 6% for payroll, equating to $1,200. If income increases to $50,000, the payroll percentage remains the same, but the available budget increases to $3,000. This allows for additional staffing to handle the increased business.
Additional Considerations
Payroll includes more than just salaries. Other related expenses like workers’ compensation, Social Security taxes, and employee benefits must also be considered. Although crafting a budget for a new business can be daunting, it's a vital tool for success and sustainability.
Conclusion
While establishing a budget for a new business can be challenging, it is an essential step for any business owner. Thoughtful planning and adaptation to changing circumstances will help ensure the financial health of your business.
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