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Is Your Small Business Venture Properly Budgeted?

Don Amerman

February 10, 2014

Launching a small business without a carefully planned budget in place is a recipe for disaster.

In a 2013 article written for Forbes, Eric Wagner passes along some ominous statistics developed by Bloomberg: Roughly 80 percent of new business ventures launched by U.S. entrepreneurs fail within the first 18 months.

Although the specifics behind this high level of failures vary from company to company, in the end most of these ventures fail simply because they run out of money.

Helps Avoid Pitfalls

Although having a budget is certainly no guarantee of success, it does provide your new business with a roadmap that, if followed faithfully, can help you avoid many of the pitfalls into which small businesses often fall.

Whether it's for your household, a nonprofit organization, or your business, a budget essentially serves the same purpose: It lays out experience- or researched-based projections of your revenues and expenditures.

Budgets are not carved in stone and must be consulted frequently so that you can reconcile your budget assumptions with actual performance.

Basis for Budget Assumptions

If you've been in business awhile, you will have past trends in revenues and expenditures on which to base your budget assumptions.

To create a budget for a new business venture, you will have to do a good deal of research among other area firms in comparable lines of businesses in order to project as accurately as possible your future income and expenses.

Although learning the art and science of creating a budget may seem at first glance to be a somewhat daunting undertaking, there are plenty of online resources that can provide the guidance you need to get the job done.

Additionally, inexpensive software programs are available that help to automate the process and ensure that you cover all major areas of concern.

SCORE Budget Template

 To get a framework for your business's budget, you might want to turn first to SCORE, a Washington, D.C.-based nonprofit team of more than 13,000 volunteers who describe themselves as "counselors to America's small business."

Among its many free online resources is a 12-month budget template laid out in spreadsheet format.

Using the template, you can begin to fill in your estimates or projections of revenue and expenses for your business. In each of its categories, the template provides space for your projection of sales, cost of sales, and operating expenses, as well as a space where you can enter the actual figures at the end of each month.

Every Budget Is Unique

Although your company probably has much in common with other companies in the same type of business, each company is unique in some respects, and your budget should reflect such differences by creating categories of revenue or expense that specifically reference your operations.

A quick review of the SCORE budget template gives you a fairly good idea of the basic categories your budget should include. The budget begins with an estimate of the revenues you expect each month from the sales of your products and/or services.

To compute your gross earnings, the cost of sales must be deducted from the sales total. Included under the umbrella term "Cost of Sales" are the costs directly attributable to producing the goods and services sold. This would include raw materials and direct labor costs.

Calculating Net Profit or Loss

To determine your company's net profit or loss, your budget must next enumerate the company's operating expenses, which include a multitude of individual categories.

These categories include -- but are not limited to -- accounting, advertising, salaries and wages, vehicle expenses, bank charges, printing, insurance, interest expense, taxes, rent, telephone, utilities, depreciation expense, and office expense. If your company has operating expenses that fall outside these categories, you should insert them into this portion of your budget.

Even the most careful budgeting in the world cannot ensure that your business will succeed. However, drawing up a budget based on past performance or careful research and adjusting that budget as circumstances dictate can definitely help your company avoid getting in over its head.

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