With the end of year fast approaching, now is the time to consider your new years budget.
Start by looking at your sales; consider how it has changed from previous years. And don’t be too optimistic. It’s always better to set a pessimistic budget and outperform it. If you underperform, you might find your self caught short and unable to pay your bills.
Be sure to take into account all income streams, and first work out gross sales, ignore profit initially. Separate your income by month using past year monthly actuals can help to determine seasonal fluctuations over the months. Then consider how your business is performing. Have you needed Covid affected and by how much in percentage terms? Adjust the monthly sales figures based on your estimated percentage, and now you have a sales budget.
Fixed costs are easy to estimate. Look again at last year but adjust for any changes, e.g. new and cancelled services. Don’t forget to include Rent, subscriptions, and wages. But leave out interest and depreciation at this stage.
Variable expenses are more difficult to estimate. The figures you set with your sales might assist with budgeting these amounts. Check your prior year profit and loss to be sure that you don’t miss some expenditure, like staff training and marketing costs.
It is always recommended to include an expense called ‘contingency’ to be sure that unexpected expenses can be covered.
Create a spreadsheet to work on your figures. Calculate the budget profit before interest and depreciation: refer to this as EBITD Earnings before Interest, tax and depreciation. Then list all of your business loans and the monthly payments. Add a line below the profit calculation and deduct the payment amount from the EBITD. You should have a surplus. If not, you must make adjustments to your costs or your business will likely not survive, and you will certainly find paying your bills difficult or impossible.
