In my recent blog post, “Seven Signs You Need A Business Operating System”, I called out the seven common problems that small businesses face and how those problems can be solved using a business operating system.
A budget is a critical tool for helping you make business decisions.
In this blog post, I am going to define how to build a simple budget (financial model) for your small business and explain why building a budget can help you improve profitability and make better decisions.
What Is A Small Business Budget?
A budget is your business in black in white. It is the financial skeleton of your business.
According to Wikipedia - "Budgeting is the task of building an abstract representation (a model) of a real world financial situation. This is a mathematical model designed to represent (a simplified version of) the performance of a business..."
A good budget does the following:
- Details the products you plan to sell and the revenue generated from those products.
- Details your cost of goods sold or the costs incurred when you sell those products.
- Details who you think you will need to hire, what they will do and what you will pay them.
- Details how much you will spend on sales and marketing.
- Details how much you will spend on general and administrative costs.
- Details if your business will make a profit in any given month.
Let's go through elements 1-3 in this blog post and why they are important to your business.
Running a small business can be chaotic.
The definition of "chaos" is "complete disorder or confusion". Does that sound like your business?
Some synonyms of "chaos" are: disorder, disarray, disorganization, confusion, turmoil, commotion and disruption.