Are you a small business owner wanting to make the wisest financial decisions possible? Have you discovered that your freelance business’s earnings are dwindling away, but you have no idea why? Do you find yourself putting in more work and time, but you can’t see a return for the investment? If so, it’s time to balance the budget.
It’s impossible to thrive, much less grow, as a freelance business if you don’t 1) know the accurate details of your finances and 2) assign each dollar a specific role. Let’s explore how simply balancing your budget will give you a crystal clear picture on your business’s finances so you can do both tasks with ease and confidence.
How To Create A Balanced Business Budget
Step One: Know What Your Budget Provides
A budget isn’t just about the here and now. While your budget does help increase your profits and decrease your work hours, it’s also a prediction and survival tool for the future. You’re able to identify and preemptively approach tomorrow’s challenges, and you’re preparing yourself to afford emerging growth-factors.
Step Two: Total All Income Sources
A profit and loss report will help you determine how much money your business makes month to month in terms of operating revenue, which comes from product and service sales figures. Software can be used to generate a detailed report. Don’t forget to add in other streams of non-operating revenue, too, including:
• Licensing & royalties
• Cooperative funds, such as renting part of your space to another business or ad service.
Together, these account for the funds you have available to run your business.
Step Three: Define Your Fixed Costs
These are the rotating expenses you encounter on a set schedule, such as:
• Business systems – internet, phone, etc
• Outsourced services – legal, bank, accounting, web hosting, answering services, etc
• State and government – fees, taxes, licensing, etc
Because the price for these factors will remain relatively the same each month, this is one of the easiest components to balance the budget. Expense reporting software makes this step a snap, or you could look back through your bank statements and business records to tally fixed expenses.
Step Four: Add Your Variable/Discretionary Expenses
Once you have a fixed expenses total, you’ll want to add your variable expenses to the figure. These are expenses that you never know when or how much you’ll pay and are often discretionary, including:
This is where the bulk of your budget savings will come into play since many of these factors can be scaled up or down in accordance with your business’s real-time performance and need.
In a nutshell, your profit is earnings minus fixed and variable spending. If business has a slow month, then cut back to weather the lacking profits. If profits are larger than predicted, then you have the wiggle room to strategically invest in discretionary spending that enables growth.
Step Five: Predict Future Expenses
The ability to predict future expenses is instrumental in you surviving and thriving as an entrepreneur. One of the biggest perks of a budget is that it leaves your business prepared for those unexpected one-time expenses and growth-investment opportunities. If your business equipment fails or needs replacing, it’s already accounted for in your budget. If you need to upgrade your customer service experience with anything from an office remodel or new services to a promotional giveaway, it’s already been budgeted months to years in advance.
Step Six: Be Of Action
It’s one thing to have a bunch of numbers idly sitting in front of you, and it’s another thing to actually use those numbers for actionable steps toward an even better tomorrow. Pull steps one through five together for a comprehensive, realistic picture of your business’s finances. You’ll be able to see where and how your time, energy, and funds are best invested for overall, long-term profitability. Where do you need to pivot and redirect? Where do you need to push harder? The answers to it all can be found in by balancing your monthly budget.
In closing, following these six steps to balance the budget may seem tedious when you’re hyper-focused on being in the moment with your daily business dealings, but the reward is having an infrastructure that enables you to have a healthy, thriving, growing business for all its tomorrows. Balancing your business budget is the ultimate due diligence toward prudent financial decisions.