Business.HealthSufficiency

One of the most difficult things to do when you start a new business is putting together a budget. Without any financial history on which to base income and expenses, it may seem like guesswork, but as part of any business plan a tentative budget can be established with some thought and anticipation for the future.

In most businesses there are two main categories, income and expense. Under your expense category there can be several sub-categories often falling into two main areas of controllable expenses and uncontrollable. While many business owners claim they can control every expense involved in their business, they are simply kidding themselves as some things such as utility costs, the amount of rent and other so-called fixed costs can, and do change, with the owner having no control.

Other expenses such as payroll, insurance and advertising can be subject to a budget, but they are considered controllable expenses. If the business begins to fall off, you can control some of these expenses by laying off employees and cutting back on advertising. However, living by a budget will help maintain profitability in many respects but can also turn against you in the long run.

Depending on the viability of your business it often is a better investment to bite the financial bullet on employee wages and still provide good customer service to the remaining customers until business picks back up. The downside to doing this if you have a very busy business is that by trying to do everything yourself not only will you burn out quickly, but is no one is taking care of the customers, and it will not take long until there are no more customers to care for.

Lee Porter an author and entrepreneur for HealthSufficiency, a continuing health, personal development and life dynamic education and business development company helping people to be meet their potential to lead healthy, prosperous and successful lives.

There are two ways to budget your business money and that is through set dollar amounts and percentage of income. Many businesses will budget their controllable expenses by the dollar and non-controllable by percentage of income. Obviously a good part of the owner’s time is going to be based on bringing money into the business and how much they have to spend on controllable expenses will be in direct relation to income.

For example, a company earning $20,000 a month in income has budgeted six percent for payroll, providing $1,200 for payroll. If the income level rises to $50,000 the budgeted payroll percentage does not change but the dollars available for payroll climbs to $3,000. With an obvious increase in business to create the additional income, the owner will probably need to hire extra help to take care of business.

There are many other expenses that need to be covered under the payroll account such as worker’s compensation charges, Social Security tax paid by the employer and paid vacation time or other perks determined by the employer.

While a budget may be difficult to establish for a new business, it is a necessary evil for all business owners. A budget should be considered a useful tool to provide a the owner with understanding about the health and direction that their business is taking and be a basis on which to make decisions about expansion or cutbacks.