It's Time for Your Business to Have a Budget
Whether you love it or hate it, budgeting is extremely important for all types of businesses. The key to successful and accurate budgeting is to not forget anything. What’s the best way not to forget anything? Have a checklist. When you use a checklist, you limit surprises and help ensure you didn’t forget anything during the budget building process.
Our Top 5 Considerations to Add to your Checklist when Building a Budget:
People, including payroll and contractors, are often the largest expense of any business. The key consideration here is do we plan to hire or let go any of our staff this year? If we decide to hire someone, will they be replacing a current employee or contractor? If we decide to let someone go, will they be replaced? How long will it take to find a replacement? Make sure to go through the same exercise for all contract employees.
Will there be any changes to our office space this year? Does our contract state that rent will increase from last year? Are there any one-time rent adjustments that happen throughout the year?
3. New Revenue
Make sure to account for any new goods or services you will be offering this year. Don’t forget to account for new versions of an older product that may have a different market or price point than older versions.
4. Old Revenue
Take a look at your current revenue streams. Are there any long-term contracts that are up for renewal? Be sure to follow-up with those customers and confirm they plan to renew their contracts. You’ll also want to make sure to account for price increases (or major promotions) you plan to make this year.
5. Cost of Goods or Services
If you do add new revenue, how will the cost of those goods and services differ from the variable costs of your older revenue? A common mistake made in budgeting is to assume that new goods or services will be sold with the same margin as the old ones.
Make sure to consider any changes to the cost of your goods or services. Now is a great time to sit down with your accounting team and see if there have been any changes to your material or direct labor costs since last year. This will give you an opportunity to negotiate with suppliers or think about price increases for your products.
Budget time is also a good time to look at your expenses from last year and decide if there is anything you want to re-allocate in expenses. Less money spent on subscriptions and expenses or a stricter travel budget could mean higher salaries for yourself or your top employees. More revenue could mean more money to invest in a more specialized team. This is your business, build it the way you want it.
If you don’t think you’ll have time to build a budget this year (or are worried you might never look at it again after you do build it), try AutoCFO. We can help you stay on track this year with an easy budget building tool and one-click updates to see how you’re doing at any point in the year.