As I briefly mentioned yesterday – starting your own side business is a wonderful way to be a side hustler. However, it takes a lot of marketing and accounting skills as well. Thankfully, Al Krulick from Debt.org is here today to talk about important tips when it comes to creating and managing a budget for your new business!
Congratulations! You have decided to roll the dice and start your own business. The good news is that you are now working for yourself. All of your productivity, intelligence and hard work no longer belong to anyone else. You get to decide how much you can earn, when you can arrive and leave the workplace, and who will labor beside you. The bad news is you are on the hook for every penny. If things don’t pan out the way you hoped, there is no one else to blame.
Of course, you have begun your new business based upon a solid business plan. Unless you have your own unlimited resources, without the plan it would have been impossible for you to raise your start-up funds, either in the form of a loan or loans, or equity from investors who believe that you will succeed and eventually return their investments along with a healthy profit.
Your Budget Must be Realistic and Flexible
Key to your plan should have been a realistic budget divided into two parts: your capital expenditure budget as it relates to the initial costs incurred for real property, equipment and materials needed; and your operating budget as it relates to your normal day-to-day outlays such as payroll, taxes, supplies and miscellaneous costs. Your operating budget is further divided into two parts: revenue and expenses. Your expense component should also be divided into fixed and variable costs.
Many new entrepreneurs make the mistake of not seeking expert advice in the areas where they are less knowledgeable. While focusing on your core competencies — developing and refining the business’s products or services – you may want to consider hiring a qualified accountant to handle budgeting chores. Any task that can be done better, and ultimately more cost-effectively by a competent professional, should be contracted out.
In any case, managing your budget is not something you can do on the fly. You need to set up an accounting system and construct a spreadsheet itemizing every category of expense as precisely as possible. But remember, when you’re just starting out, these numbers are just your best estimates. It is unlikely that you won’t experience some frustrating surprises as things get going. So be sure to factor in some slack, and make sure you’ve got enough money in reserves to meet any unforeseen situations.
Also, it is important to understand that your budget is not static. You should review it every month or two, at first, and make all the necessary adjustments based upon your revenue assumptions versus your real income stream, and your budgeted amounts versus your actual expenses.
While making sure that you are paying all your bills, you also want to factor in how you intend to grow the business. A budget should always be, in some regard, a roadmap for future expansion.
Keep Your Business Budget Separate
Try to resist the temptation to mix your business budget with your personal one. While most new start-ups generally get some of their initial funds from their owners, it is generally a poor practice to mingle the two accounts. It’s bad when a business fails. It’s doubly bad if you have put your own financial wherewithal on the line, so that your family finances fail along with the company.
Finally, it’s important to remember that budgeting is not just a necessary chore, but a valuable tool that will help you achieve your business goals and ensure its future success.
Al Krulick is an award-winning journalist with dozens of years of writing experience. He writes and blogs for Debt.org an Organization that strives to help consumers with their credit.