Entrepreneurs at various stages of development often know a great deal about their product or service, but not enough about budgeting and finance. They might generate strong revenue but still find themselves short of cash.
Better financial reporting can help you tell the story of how your business is doing. An accurate, honest report tells a story that matters to your employees, investors, lenders, and other financial supporters.
Monthly Expense Budgeting
Get the story right by creating a monthly expense budget. A budget is a road map. It tells you where you are going, how you are going to get there, and what milestones you need to reach along the way.
Cleveland Business Mentors has prepared a spreadsheet where you can enter your monthly revenue and expenses and produce reports that help you analyze your business. (Download it as an Excel spreadsheet and follow the instructions.)
Start by entering all the items you are spending money on each month, or that you will need to spend. If you do not know what the figure should be for web hosting, freelance support, or another expense, research what similar businesses of your size and type typically spend.
Monthly expenses might include salaries, employee benefits, freelance expenses, website hosting, web designers, technology consultants, software subscriptions, internet access, digital storage, rent, utilities, and other operating expenses. As a rule of thumb, employee benefits may add 25% to 35% to salary costs.
After you make that list, ask yourself: Are these expenses aligned with our objectives and priorities? Are they nice to have, or are they absolutely essential? Be disciplined. Trim the fat.
Cash Flow
Once you estimate revenue and expenses, you can start to understand cash flow. Cash flow measures how much money is coming into the business compared with how much is going out each month or year. It tells you how fast you are burning the fuel — money — you have in the tank, and how quickly you are replacing what you have burned.
For example, suppose you enter a beginning cash balance of $100,000 from the savings of the co-founders and contributions from family and friends. Let’s say your first-year budget calls for one-time expenses of $10,000 for laptops, smartphones, and audio-visual tools, plus monthly expenses of $5,000.
By the end of the year, you will have only $30,000 left — enough to survive for six months — unless you find new revenue sources or reduce projected expenses. The calculation is simple: $100,000 minus $10,000 minus $60,000.
Now you can create a road map for achieving profitability.
Once you get beyond the basics, you may find that accounting helps you look beneath the surface of the enterprise to see what is really going on inside. You can make better decisions based on facts rather than guesses.
Preparing a budget can feel intimidating, but it does not need to be. Contact a Cleveland Business Mentor to help you walk through the process, step by step.
By James Breiner, Certified Small Business Mentor, Cleveland Business Mentors
This article is for informational purposes only and does not constitute accounting, tax, or legal advice. Always consult a qualified professional for guidance specific to your situation.
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