Planning a business budget
A business budget: Granted, it’s the beginning of January and I’m telling you to plan your spending for all 12 months of 2015. Am I crazy? Well, maybe a little, but not exactly when it comes to your business finances.
In all reality, this is called a budget. And when you budget, you create an overall budget for the entire year, that is also broken down by months.
What to include in your business budget
There are certain things that have to be included in your business budget – starting with how much money you are going to make. This number has to be defined first, because otherwise, how are you going to actually spend money if you don’t already have any?
Once you have decided on how much money you are going to make, then you can begin to plan how much you are going to spend. You will break this down into categories: expenses you can’t live without, staff/team, self, taxes, and discretionary spending.
Expenses in your business budget
The expenses that you can’t live without include things like your rent, phone/internet bills, website expenses, CRM expenses, accountant, lawyer, and electricity. These are the things that you have monthly or maybe even yearly expenses for that are required for you to successfully run your business day after day.
Staff/Team in your business budget
The next category, staff/team, only applies if you have a staff or a team that works for you. You must include this in your budget so that you know how much discretionary spending you will have at the end of the month. This category is in a way an expense that you can’t live without, but it does have it’s own category since not everyone will have this expense.
Paying yourself in your business budget
And the next category in your business budget is paying yourself. Unfortunately, you can’t pay yourself before you pay the expenses that run your business and your staff/team. Only after all those bills have been paid can you then pay yourself. And paying yourself is an expense in your business, that not all business owners take advantage of. Paying yourself can include paying your credit card bills, buying yourself meals because you are working late, etc. This is all
included as paying yourself, because it would come from money that you had if the money was in your hand and not your business’s hands
Paying Taxes with a business budget
There is a category for taxes because even though there are still many people that don’t want to pay taxes, it is a part of being a business owner. So you really should budget to be able to pay your taxes. This account should always be over-budgeted, because when you over-budget here, you end up with extra discretionary income at the end of the year to start off next year. I know that there are a lot of people that don’t like to pay taxes, but unfortunately it is a part of being a business owner.
In the United States, you are required to pay a minimum of 15.9% of all income (money brought in) to the social security fund every year, even if you have a loss in your business. I always tell those that ask, that they should save 25-30% of the income from every sale for tax purposes. This may seem like a lot, but would you rather have the money saved ahead of time, or get that tax bill at the end of the year that you aren’t prepared for? When you set that money aside, open up a savings account that you can dump that money in every time you make a sale. So now you are also making money on your tax money as well.
Discretionary spending in your business budget
And finally, we have the last category, discretionary spending. What discretionary spending is, is the money leftover after all of the bills have been paid. This is actually the profit you have in your business. But you can turn it into expenses, which in turn lowers your profit. Discretionary spending can be spent on those courses that you wanted to take to help you have a better website, better branding, learn a new skill that will help you in your business, or even buying new computer equipment to upgrade the stuff that you already have. This category is just that spending money that can be turned into expenses to help lower your business income. But there are things that do not count as business expense – clothing, vacation spending, housing while on vacation (even if it is a working vacation) – so make sure you always check ahead of time before spending on what they think is an expense for their business.
Handling your money in your business is one of the easiest and hardest tasks all at the same time. But if you create a business budget and then stick to it as best as you can, especially with saving for tax purposes, you will have an absolutely amazing 2015 with money in your business.
This was a guest post by Clarissa Wilson
Clarissa is “the Money Guru” She focuses on bookkeeping for online business owners and money empowerment coaching. She has 2 Master’s degrees in Forensic Accounting and a Bachelor’s degree in Accounting. She lives in Harrisburg, PA with her two furrbabies, Chubbs and Sparky and loves to learn new things on a daily basis. You can follow her here: www.facebook.com/heartwhispers34, www.twitter.com/clarissaawilson , www.instagram.com/clarissawilson86, and www.clarissaawilson.com .
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I’d love to hear any questions you have about creating a budget, share them in the comments below.