Q: I'm planning on opening a small electronics store. I have a great business plan but have no idea of how to set up a workable budget. Help!
A: Budgets should be thought of as a roadmap toward the success of your company rather than just a list of items and numbers. They should give you a greater understanding of what you need to do to be successful and how to get there.
The key to a good, workable budget is your business plan, which outlines the basics of your business and what's to come. This should give you some insight into the equipment you'll need, the number of employees needed to keep your company running and other key factors.
Basically, a good budget tracks income and expenses, factoring in expenses for equipment, salaries, and the cost of keeping the lights on and water running.
_ Meet with an accountant. This is essential, especially if this is your first foray into setting up your own business. A good accountant can give you some insight into the budgeting process.
_ Be realistic. List every possible expenditure, including estimated taxes. This should also include an anticipated return on investment and your targeted income minus state and federal income taxes.
_ Be flexible. Adjust your expenses from month to month, using income and expense figures for the previous months. You don't need any surprises at the end of the year.
_ Pay yourself a set salary. Don't use all your profits to pay for that vacation to Maui. Instead, reinvest any surplus income back into your business. Make sure your salary at least equals what you'd be earning working for someone else.
_ Estimate your profit for the coming year. This should reflect market trends and your anticipated customer base.
_ Be sure to include every possible expense. These should include wages, taxes, utilities, equipment purchases and maintenance, postage and any other factors that may affect your bottom line.
_ Estimate the costs of your goods or services. Estimate the cost of maintaining an inventory, shipping charges and costs for the time involved to provide goods and services. These costs should be deducted from your sales revenue.
A well-formulated budget should give you some insight into your actual needs. It will enable you to fluctuate from any unrealistic projections outlined in your business plan. You'll see where changes need to be made and can implement them before they become a problem.
