Business Plan - Budget Section

[nealrm]

Thanks to Vangogh we now have a nice new Business Plan sub-forum. So I thought I would start it off by starting a thread on one of the sections of the business plan.

OK - unless you are wealthy to the point of being able to throw away money, you need your business to bring in cash. Simply put, that means the money you spend on the business needs to be less than the cash it brings in. For the most simplest of budgets you have a column for expensive and a column for income. It may look something like this (very simple version):



Income Source
Amount

Expense
Amount


Sale 200 of widget 1
400

Sheet Metal
10


Sale 499 of widget 2
1200

labor
20





Utilities
100





Rent
250
















Total
1600

Total
380



Revenue = $1600 - $380 = $1220

However, most business will have a great deal more items. Federal, State and Local income taxes, employee taxes, Owner withdraws, advertising, office suppliers, heat/water/trash/gas, travel expenses, computer and computer services...... the list continues. The goal is to give each dollar a name at the beginning of the month. The first month, you will likely be way off. Adjust the plan for the next month. Each month you will get closer. If your income is highly variable, then you may need to prioritize. So you start with something like - the first # dollars go towards _______ once that is paid for then next dollars go toward ______. Continue this until everything is paid.

The same goes for revenue. You may find that your sale forecasts were either too optimistic or pessimistic. Adjust as needed.

The end goal is to generally know that you need to make ## number of sales, or do ## jobs to make a profit for the month. In some areas this estimate will be rougher than others. Instead you end up with something more like you need ## small jobs plus ## big jobs. That's OK too.

Part of the process for creating the budget is seeing how different expenses affect your sales requirements. Is it possible to sell 200 more items a month so that you can afford the larger office, how many additional sale are needed to have a new versus used computer.... Putting your budget down on paper forces you to see those items.

[vangogh]

First give Neal the credit. It was his idea to create this sub-forum. I simply agreed and happen to have the key to unlock the new room.

I wish I could tell you I did this, but I'm pretty lax when it comes to accounting and keeping track of things. I have my system that allows me to find what I need at tax time, but that's about it.

Do you keep an ongoing business plan that includes accounting like this? I take it you do and you update it regularly enough. How do you have your entire plan set up?

[nealrm]

I did this each month the first several years we had the business. After 10 years, everything is still going into quickbooks so I can keep track of where the money goes. I have a good feeling on what to expect each month and what is needed. I still brush off and adjust the budget once or twice a year and any time there are major changes. I also have completely separate bank accounts for personal, business, income tax and car. Every time I make a business deposit some of it goes into the tax account. I make a car payment each month to myself and pay myself twice a month. I know where those balance should be at a specific time of the year. If they are not, I start looking at why the budget is off. FYI - we run the wheels off our cars so I treat them as an expendable, thus the car account.

[vangogh]

It's a good idea and I know I should do a better job keeping track of accounting. Like I said I keep track of it in a way where I know I can find anything I need at any time. Not necessarily in an instant, but I can always find what I need. Having better records that would let me look up things in an instant and also keep me paying attention to them more often would definitely be useful.

Every so often I do start to think I should keep better track of income and expenses (usually around tax time :) ). Thanks for the reminder that I should get more serious about it.