According to Alan Safahi, an experienced and skilled entrepreneur, small businesses deal with emergencies that create additional expenses, delays, and lost profits without a strategic budget or plan.
Safahi Orinda, a successful startup founder, says small business budgeting requires careful planning and preparation. However, it would help if you did not complicate it. In other words, it must not be nerve-wracking and time-consuming.
When you use advanced cutting-edge tools and best practices given below, you can take control and manage your budget planning. The purpose is to make accurate financial decisions and improve your business. Read on!
Review Your Revenue
The first step is to identify your income sources that feed your business activities when building a budget. Once you have collected, analyzed, and detailed your income sources, you can tote them to calculate and analyze your monthly income. According to Safahi, develop your budget according to your company’s revenues instead of focusing on the profits.
Deduct Fixed Costs
Fixed costs are recurring and sustain your business operations. However, there is no set time or duration for a fixed cost because it can recur daily, bi-weekly, weekly, bi-monthly, monthly, quarterly, and annually.
Collect relevant data, including information about your company’s revenues, to streamline the entire process. Generally, small businesses have fixed costs like taxes, rent, insurance, supplies, repayment of loans, and asset depreciation.
Measure Variable Costs
In addition to deducting fixed costs, Safahi recommends measuring valuable costs because they contribute to your business’s ongoing operations. However, they also include discretionary expenses that boost your business’s visibility, growth, and profitability.
Your business may incur variable costs like utilities, office supplies, equipment repair or replacement, and marketing expenses. Therefore, Safahi Orinda recommends understanding, tracking, and analyzing variable costs to plan for additional enhancement to your company’s budget and adjust your cashflows.
Create a Contingency Fund
The business world is unpredictable and risky. Not having a contingency plan can put your company at risk and on the brink of collapse. According to Alan Safahi Orinda, a contingency plan can protect your business in times of financial crisis.
Likewise, having a contingency plan works well with financial backups, including small business loans and additional infusions from investors. You can access the emergency fund immediately and protect yourself from additional debts.
Create Your P&L Statement
Create a profit and loss (P&L) statement based on the financial information or data. The purpose is to create a formal financial report and document your expenses, revenues, and profits/losses within a given period.
Make sure you don’t create an overly complex profit and loss statement and follow the easy steps, such as adding up your revenue and expenses for the month and subtracting your costs from the total revenue. Alan Safahi says that when you have a positive result, you have made a profit.
On the other hand, a negative figure means you have made a loss. Anyway, a profit and loss statement is an integral component of your budgeting plan, streamlining the financial side of your business.
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