If your budget isn’t ready for the new year, now’s the time to do it. You should be budgeting in December so you can be ready to roll once January 1 is here. But if you haven’t, it’s not too late. And this is not something you should overlook.
Every business needs a solid budget in place to ensure they are (and remain) profitable. But candidly, there are few business who actually go through this process. Either they aren’t sure what to do or they feel like they’re not making enough money to have a budget in place, this is probably the most-skipped (but also most necessary) step in business ownership.
Your accountant should spend time with you, helping you to understand your numbers and how to lower your tax burden in 2018. Whether that’s investing and donating, changing your business status or lowering your own pay grade, there are a lot of things you can do to help lower your tax bill.
But you also need to take a good look at your numbers from last year so you can plan financially for this year. I recommend blocking out a few hours over the course of a few days to walk through this process.
Note that this is a simplified process for budgeting and that not all businesses are created equal. You may need to look at different metrics to help you determine the right budget for your business. But this is a place for you to get started. And of course, it is helpful if you have all of your expenses categorized correctly as well.
First, know what your revenue was for 2017. We’re talking your overall billing–the gross amount you brought in. Then, divide that total amount by 12. This is the average that you made each month last year.
Next, take a look at your profit and loss statements for each month to determine what you spent each month and what you had coming in. If you had a big launch last year or took an extended vacation, you’ll see some variations in your income. While there’s nothing wrong with that, you’ll want to take note of this.
Now it’s time to project your numbers for the new year. Do you have anything new coming up this year that may impact your income? A launch? A speaking gig? New services you’re adding? Even though you may not have it all figured out yet, my guess is that you have some idea of what’s coming up in your business. Determine what month(s) these changes will come about.
If you haven’t already estimated this year’s expenses, you’ll want to do that now. Looking at your monthly profit and loss statements, you’ll be able to see what you spent in your business over the last year. I recommend also going through your bank statements to see what subscriptions you have that you’re forgetting about–and cancelling them if you’re no longer using them or they’re no longer serving their purpose.
Take each of your expenses and break them down by month, so you know exactly what is leaving your business account each month, quarter and year. Now that you know what you need to bring in to break even, make sure that number is more than your monthly expenses. And take into account your slower months, so you’re not slipping into the negative during the year. To make it simple, you can simply take the total number for the year (for each category) and divide by 12 for 2018.
Creating a budget can be stressful and uncomfortable, but you need one–no matter what size your business. As you grow, your budget can grow and develop but you’ll still have a guideline for what’s coming in and going out of your business on an ongoing basis.
