BUSINESS BUDGETS & TOOLS
Note: To use the spreadsheets below, you need to have Microsoft Excel, OpenOffice, LibreOffice or another compatible program installed on your computer.
You have probably selected your particular business idea because you have some experience or interest in the industry. You might have some "tools of the trade" on hand. Your tools might include equipment, land or a building, inventory, education, work-related experience and/or working capital.
Taking inventory of what you are bringing into your business is important. First, it helps you begin thinking about what you will need to start your business. In addition, any source of funding will want to know what you are contributing to your business start-up. Your personal resume may be the most important document included in your business plan.
Know What You Need
Now you need to create a list of everything you will need to start your business. Think about what you must have now and what you would like to have in the future. Create a list for each. After you have determined all of your start-up needs, find suppliers and gather bids.
To start you business, you will have some expenses that will occur only once in the history of your business or will have to be paid before you start earning. These could include signs, deposits on utilities, rent or equipment, training, "grand opening" marketing, accounting or legal fees, office supplies and forms, licenses and permits, or inspections. Download the Startup Costs worksheet.
Expected Operating Expenses
Just like at home, your business will have monthly and annual expenses. You now need to estimate what these expenses will be. Using your household budget as a guide, begin to list your expected business expenses. Some of the expenses, like rent or mortgage payments, or loan payments will be the same amount every month. These are considered "Fixed Expenses." Others will fluctuate month to month due to seasonal changes or business volume. These are "Variable Expenses." Examples might include utilities, long distance charges, production supplies, or payroll.
The worksheet provided here is set up to automatically carry month 1 figures throughout the following 11 months. If you have an expense that will be paid once during the year, divide the total payment by twelve and enter the result in month one. This will create a budgeting tool for you; instead of hoping you have enough money in your checking account to pay a large annual expense, you can save for it throughout the year.
Download the Income Expenses worksheet
Cost of Goods/Services Sold
Now it is time to determine exactly the cost of your business or service. This step is critical to the profitability of your business. Many small business owners sell their product or service for less than the actual cost because they didn't realize all of the components and include those in the pricing. This is especially the case when the owner has some of the components on hand. Don't forget, when you run out of your inventory, it will have to be replaced. If you use 4 screws in the production of your product, and you pay $20.00 for 100 screws, that is $ .80 per item produced. That may not sound like much, but if you are producing 10,000 items per month it really adds up. Other pitfalls are not charging customs sales tax or shipping or not considering the cost of time spent on the product or service.
Products or services should be priced in line with the current market place and be sufficient to pay all business expenses and, given a reasonable amount of sales, make a profit for the owner.
When pricing your product or service, take the following into account:
- What is the actual cost of your product or service?
- What price is appropriate for your market?
- What are reasonable sales goals for your business?
Fluctuation in Sales
Every industry has seasonal fluctuations in sales. Businesses also don't generally open their doors at 100% of sales capacity; it takes time to develop a customer base. As you build your estimated sales projections, you must take these factors into consideration.
Where do you find this information? The Internet is a good place to start. You may also gather facts while you are Proving Your Market. Trade publications have information on seasonal fluctuation. If you are purchasing an established business, the records should give you an indication. You might also ask a competitor. Often, competitors can supply you with a wealth of information.