- Why should I set budgets and track expenses for my small business?
- What are the different types of expenses I need to keep track of?
- What software programs and tools can I use to help me track expenses?
Imagine Sarah owns a food truck that sells sandwiches. Every morning she drives to the same spot on a street in her city’s financial district.
Thanks to the combination of her delicious sandwiches, prime location, and hungry office workers on lunch break, Sarah’s food truck has steady business. Sometimes she even sells out of her more popular sandwiches.
To make sure she’s consistently turning a profit, Sarah faithfully checks her bank account at the end of every month.
But is this the best way for her to monitor her business’ success?
Owning a small business can be rewarding, but also risky. Often, businesses fail because they simply run out of money.
Yes, checking your bank account can let you know if you’re selling enough products and services to make money each month. But this doesn’t help you steer your business toward success 1 year from now or even 10 years from now.
So what can help? Hoping and praying. Just kidding. It’s setting a budget and tracking your expenses. This can help you stay on top of the health of your business and actually see what it’ll take money-wise for your business to succeed.
Setting a budget and tracking expenses help you:
Seeing current operating costs and sales numbers helps you confirm you have enough money to keep afloat.
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You can prepare for issues that may crop up, like a seasonal drop in sales or your rent going up.
You can plan out steps to take your business to the next level and know how much it will cost.
Having your business expenses organized can also help you prepare for any taxes your business will need to pay – and can help you stay on top of any deductions or write-offs you may be able to make.
As a first step to setting up a budget for your small business, consider making a list of all your business expenses.
This might include marketing, payroll, technology, equipment, vehicles (including mileage), rent, utilities, supplies, ingredients, travel, entertainment, and so forth.
If your business is already up and running, you’ll have a good idea of what your expenses are. If you haven’t started your business yet, you can check out the Small Business Administration and Score.org websites for help.
Depending on where your business is based, it might be a good idea to organize your expenses into categories based on what taxes and deductibles your tax codes allow for. This can help you down the line when you file your taxes.
The next step
is to take note of which expenses are one-time, recurring, fixed, and variable.
For example, Sarah bought her food truck, which is a one-time expense. But she has maintenance work done on it every 3 months, so that’s a recurring expense.
Fixed expenses –
can’t be changed or are very hard to change – like rent, management salaries, and benefits. It’s important that you don’t let these expenses get too high since you can’t cut them quickly if you’re not making enough sales.
Variable expenses –
are ones that you can change based on how much you’re selling. Sales commissions are a great example of this because they go up or down based on how much your salespeople are selling.
Writing down these expenses helps you plan for when and how often you’ll need money for them. This can also tell you when you may have extra money for other important business needs, like hiring seasonal help.
Consider making a note of which expenses boost profits and pay for themselves. For example, buying online search ads might mean you need to increase your budget, but they could also result in increased sales and profits.
They let you digitally sync your business accounts and credit cards so you can see all your expenses. They’ll also automatically itemize your expenses and profits into categories of your choosing, like “payrol” and “marketing.”
This allows you to see how your expenses and profits have changed over time, what you need to adjust or cut to raise profits and maintain stability, and what sales numbers you must hit to reach your business goals.
Some accounting software can also help you plan a budget, but not all do. You can use separate budget planning software like LivePlan.com or rely on spreadsheets. You can visit Score.org for a good sample spreadsheet.