The good news is that it is possible to come up with a budget, or at least a good estimation of what will be needed in terms of dollars and cents fairly easily.
Estimating and matching expenses to revenue (real or anticipated) is important because it helps small business owners to determine whether they have enough money to fund operations, expand the business and generate income for themselves.
Not all businesses are alike, but there are similarities.
Therefore, do some homework and peruse the internet for information about the industry, speak with local business owners, stop into the local library, and check the IRS web site to get an idea of what percentage of the revenue coming in will likely be allocated toward cost groupings.
The goal is to figure out what an average weekly expense for overhead, utilities, labor, raw materials, etc. Based on this information, you may then be able to estimate or forecast whether you'll have enough extra money to expand the business, or to tuck away some money into savings.
On the flip side, owners may realize that in order to have three employees instead of two, the business will have to generate more in revenue each week.Without a budget or a plan, a business runs the risk of spending more money than it is taking in, or conversely, not spending enough money to grow the business and compete.For example, many business owners must make rent or mortgage payments.Because of this, it's wise to factor in some slack and make sure that you have more than enough money socked away (or coming in) before expanding the business or taking on new employees.If times are tight and money must be found somewhere in order to pay a crucial bill, advertise, or otherwise capitalize on an opportunity, consider cost cutting.Prior to buying or opening a business, construct a spreadsheet to estimate what total dollar amount and percentage of your revenue will need to be allocated toward raw materials and other costs.It's a good idea to contact any suppliers you'd have to work with before you continue on.They also have utility bills, payroll expenses, cost of goods sold expenses (raw materials), interest and tax payments.The point is every business owner should consider these items and any other costs specifically associated with the business when setting up shop or taking over an existing business.If you can manage to make 3 different kinds of budget you have come very far.In order to estimate how much money you need before the start-up of the business, you must work out an establishing budget.