Are you finding it difficult to budget for your small business? You’re not alone.
A lot of small business owners have a hard time figuring out how to allocate their funds in a way that makes sense for their company.
One popular budgeting system is called Profit First. This system takes a different approach to budgeting and can be very effective for small business service providers.
In this blog post, we will discuss how to use the Profit First System to budget for your small business.
What is the Profit First System and how can it help small businesses budget more effectively?
The Profit First system is an ingenious method of managing money for small businesses that can help you finally take home a profit at the end of each month.
Instead of simply looking at revenue, this budgeting approach focuses on profit margins so you make sure you’re taking home something without having to worry about breaking the bank.
With Profit First, small business owners are able to assign a percentage of each dollar they bring in to expenses and profit – that way, no matter what comes up at any given month, you know that you are providing for both your bottom line and making sure you won’t be living paycheck-to-paycheck.
At Craig Dacy Financial Coaching, we fully believe that the key to successful money management is leveraging your behavior.
Let’s be honest- when’s the last time you looked at an accounting spreadsheet? It’s probably been a while!
But when’s the last time you looked at your bank account?
You’re looking at it now, aren’t you?
We not only help businesses set up the necessary accounts needed, but also walk them step by step through the entire process. That means showing them where to start (how much they should be putting toward operating expenses now) and how to get to a financially healthy business.
Then we help you look for opportunities to increase revenue and decrease your expenses, all while keeping it as simple as possible.
How should you allocate your profits in order to grow your business sustainably over time?
Every business should have at least 5 core bank accounts:
- Income: where all deposits go
- Profit: purposefully set profit into this account
- Owner’s Pay: for making sure get paid
- Taxes: for making sure the tax man gets paid
- Operating Expenses: the funds to run your business
Every week, move a percentage of the money from the income account into the other four accounts. Knowing where to start is key here.
Look at your numbers to see how much you’ve been spending in the business and allocate that percentage to operating expenses.
How much do you need to take home for a paycheck? Make sure enough is going into the owner’s pay account to cover this.
We recommend setting something into Profit right away, even if it’s just 1%. That way from day one you are in the habit of prioritizing profit.
To help you find your starting percentages, we put together a Profit First Starter Kit. This course will walk you step by step through setting up and launching Profit First in your business.
What are some tips for tracking expenses and ensuring that your budget stays on track each month/year?
It’s no secret that business budgets can be tricky to manage and stick to, especially when you’ve got a million other things on your plate. But there are some easy ways to stay on top of your budget so you don’t get overwhelmed.
First of all, use tracking software or an app so every expense is recorded – this way it’s easier to recognize when changes need to be made. The best way to do this is to find a good bookkeeper. However, if a bookkeeper isn’t in the budget, we recommend a software like Quickbooks to help you stay organized.
Secondly, make sure you review monthly and yearly expenses regularly. Compare monthly income and expenses at the end of each month, and compare last year’s expenses with this year’s to see what changes need to be made for further savings.
Finally, be flexible enough to adjust your business budget as needed, but also keep a consistent budget plan in place that keeps your goals in mind.
What are some common mistakes made by small businesses when it comes to budgeting, and how can they be avoided?
Many small businesses make budgeting mistakes without even knowing it. One of the most common errors is underestimating expenses.
It’s important to budget for more than expected costs, such as unplanned repairs or customer reimbursements, as these can be a major drain on resources if they’re not accounted for.
Another mistake is overestimating potential income; while it’s important to aim high and have positive sales goals in mind, budgeting should be based on realistic expectations.
Small business budgeters may also forget to factor in taxes; taking the time to understand how you’ll be taxed — and budgeting for it in advance — could save you massive headaches down the line.
Ultimately, budgeting properly requires research, dedication and plenty of trial and error.
We know this can add a ton to an already full plate for a business owner. That’s why our clients use us to help keep them on track.
Any problem your business might face, we can help you see it through a different lens so that your profit isn’t negatively impacted.
You shouldn’t need an accounting degree to manage the finances in your business.
Don’t let the money gurus out there overcomplicate things. It’s your business- find a system that works for you.
And most of all, give yourself grace as you tackle a new system.
If you’re ready to drastically improve how your business manages the money, schedule a free call with one of our coaches.
Let’s Talk About Your Money
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