When you are starting up a home based business one of the most difficult things to do is putting together a budget. The challenges come from the simple fact that you are planning without any financial history on which to base income and expenses. At times it can seem like complete guesswork, but as part of any business plan a tentative budget can be established with some thought and anticipation for the future.

When budgeting for your business there are always two main categories, income and expense. IN expenses there are several sub categories that can full under the description of controllable and uncontrollable. Some business owners like to believe and tell everyone that they can control every expense involved in their business, that simply is impossible.  There are many things outside the control of a business owner.  For example utility cost, the amount of rent, and other so-called "fixed costs" can, and do change, with the owner having no control over when or by how much.

The expenses such as payroll, insurance and advertising can be considered controllable and managed within a budget. If the business begins to decline the owner 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.

Cutting costs by cutting the payroll is never easy nor enjoyable and it often is a better investment to suffer the cost over runs on employee wages and still provide good customer service to the remaining customers until business picks back up. When owners attempt to do everything themselves they often burn out quickly.  Also if too many employees are let go in the name of saving money there can often be a shortfall in customer service, and as a result it will not take long until there are no more customers to care for.

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 percent 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 the extra help to take care of business.

While a budget may be difficult to establish for a new business, it is a necessary process for all business owners.  Taking the time to set up a budget right from the start will help ensure success in the future.
 

Filed in:  Uncategorized »  Home Business

Post a comment to this article