Tips for Making a Business Budget for a Growing Company
When the situation at your company remains similar on a month-to-month or year-over-year basis, it’s often relatively straightforward to set a budget. In these situation, your budget will be similar each month or year.
But what about when your company is growing? A lot of things are different for a business that is growing quickly. While you may see increased revenue, you may also have increased costs. For example, you may find yourself dealing with higher variable expenses (raw materials, packaging, labour costs, sales commissions, etc.) as you grow. Your profits will likely change as well, though they may not increase at the same rate as your expenses.
Here are some tips for creating a business budget when your company is growing.
Look at your Revenue
What money do you expect to bring into your business? This number can be based off last year’s numbers, industry averages, or an estimate based on increases due to the growth of your business. It can often be difficult to protect revenue when you’re a growing company. Our experienced team can help with financial modelling, industry analysis, and much more. Learn about our financial advisory services and how they can help with budget creation.
Know your Fixed Costs
These are expenses that don’t change, such as salaries, rent, property taxes, employee benefits, utilities, supplies, and other costs. If your business is growing, you may be hiring new staff or opening new locations. This means you’ll have to pay higher salaries, more rent, etc.
If you don’t have the firm numbers for these costs when you’re making your budget, you’ll have to estimate these expenses when creating your budget. You may then have to go back and adjust your budget when you know the firm details.
Know your Variable Costs
Variable costs change with production output. If you’re making more of a product, for example, you’ll have higher costs associated with materials, staffing, equipment, etc. If you’re continuing to grow, these costs will likely continue to increase.
Do you have One-Off Costs?
When a business is growing, you may have one-time costs. This can include expenses associated with opening a new office (moving, renovations, etc.), buying new equipment, or anything else you need to help your organization grow. These expenses aren’t something that you’ll need to pay regularly, but you need to include them in your budget.
Build some Contingency
Business is unpredictable, and this is especially true for a company that is growing. You may end up spending more than you assumed, or you may not generate quite as much revenue as you’d hoped. That’s why it’s important to build some padding into your budget. You can do this by adding a bit more to each estimated expense on paper, or you can start a separate “emergency fund” and include this category in your budget.
Set your Goals
When setting a budget, it helps to establish clear goals. This can make it easier for you to estimate expenses and revenue and to determine what makes sense for you to spend. If you need help with the budgeting process, please do not hesitate to contact us today. Our services include bookkeeping, budgeting, forecasting, and much more.
