How To Develop A Budget - Five Top Tips



Learning how to develop a budget for your new online business is something that you'll need to do sooner rather than later.

The budgeting process for a small business doesn't have to very complicated.

It should be very similar to the way you would go about developing your household budget

Income less Expenses = Surplus/Deficit

Boy! Here I've made a massive assumption!

I'm assuming that you do have a personal budget! But, even if you don't, that's not a problem ... your learning curve may just be a bit steeper, but you'll still get there. In actual fact, this process could very well help you with your personal finances as well. I call that a win, win situation!

How To Develop A Budget - Tip One:
Identify Your Goals

The first step to developing the budget for your business is to identify your business financial goals.

As you're just starting out, be realistic with your expectations. It's always a good idea to under estimate your income and over estimate your expenses.

It's unrealistic to expect that from day one you'll be meeting your financial goals, so develop your budget accordingly.

It may be a good idea to have different sales goals for the first 3 months, 6 months and 12 months ... at least until your business is established.

How To Develop A Budget - Tip Two:
Estimate your costs

You won't have any previous records to base your assumptions on, so you'll have to "wing it" in the beginning. As you incur costs, you'll be able to amend your budget.

There are, however, the basic expenses that every business has.

how-to-develp-a-budget

An example of the kind of expenses an online business would have are:

  • internet connection
  • paper and toner for your printer ie stationery
  • postage/courier charges if you are shipping items
  • subscriptions to trade magazines or online tools you may need
  • bank fees
  • accountant
  • your salary
  • part of the household electricity
  • vehicle costs; and
  • stock if you intend selling a product

Then work out how much income you need to generate to cover your costs.

How To Develop A Budget - Tip Three:
Draft Your Budget

Now that you've set your financial goals and you have a rough idea of your expenses, it's time to put "pen to paper" - figuratively speaking.

I find that the best tool to use when developing a budget is an Excel spreadsheet.

The advantage of using Excel is that you don't have to sit and add up all your figures - it'll do it for you! And when you want to add or delete items, you don't have to redo the whole budget. That'll save you lots of time and frustration and it'll be right the first time!

How To Develop A Budget - Tip Four:
Do A Sanity Check

Well, congratulations! You have a budget.

It is now time to review your budget. Make sure that you have set realistic goals with regards to income and that you haven't omitted any costs.

Heard of Murphy's Law - "Whatever can go wrong, will go wrong?" Well, with bills there is always the unexpected expense. So to cover yourself for these, add 10% of your expenses under "Contengency". This'll cover any unforseen expenses that you haven't budgeted for.

How To Develop A Budget - Tip Five:
Monitor And Review

Your budget is a "living document" and is there to help you.

As you start operating your business you'll have a better idea of your expenses.

Review and update your budget on a regular basis.

If you really want to take control of your business from Day 1, you can use a software package called MYOB or any other accounting package for small business.

The advantage of this is that you will have an accurate picture of your actual income and expenditure for any given month compared to your budget. This will allow you to update your budget and avoid any unexpected expenses and disappointment.