How to Write Your Small Business’ 2022 Budget
Budgeting is one of the most basic steps your small business can take toward financial success. Done right, you can provide your company with realistic, achievable goals that will act as guideposts throughout the new year.
Done wrong, however, and you risk setting yourself up with a set of numbers that either sets the bar too low and doesn’t drive you to grow enough, or that expects too much and sets you up to make risky decisions so you can hit unfeasible targets.
While many new small business owners might not be familiar with putting together financial plans for the year ahead, that’s OK. We can get you started along the way. Here, we’ll lay out the basic roadmap for writing your small business’ 2022 budget.
How to Write a Small Business Budget
Putting together a budget is, in a way, telling the story of how your business … well, does business.
First, you start with revenues. What does your business do that ultimately results in someone paying you? It typically helps to have previous-year revenues to model what you might make in a given year. If you don’t have those numbers available, you’ll need to make your own projections. (And if that’s the case, be conservative.) If you plan for a perfect-case scenario, you’re already on your way to creating an unrealistic budget.
- From there, you subtract fixed costs. Your business will incur certain costs that you can reliably predict month-in and month-out. Rent, for instance, is a fixed cost. While it might go up over time, you typically can rely on it staying at the same level for at least 12 months. If you know, or have any reason to believe, that rent will go up mid-year, account for that in your calculations. Other types of fixed costs range widely, from payroll and taxes to internet service and site hosting expenses.
- A little more difficult to project are variable expenses. Again, previous-year data can help with this, but in short, variable expenses are things that can rise and fall depending on how much business you’re doing, such as marketing expenses, utilities and some supplies. Variable expenses also can include discretionary spends – think professional-development costs like sending employees to conferences.
- From here, you want to consider one-time expenditures. This includes two possibilities. First, account for one-time costs you already know you want to make, such as purchasing new major office equipment or upgrading your commercial kitchen. But you’ll also want to set aside “just in case” money for one-time costs such as replacing malfunctioning machinery or making a sudden marketing push if a rival business suddenly goes down.
- Your profit-and-loss statement is, at its simplest, taking your revenues and subtracting fixed costs, variable expenses and one-time expenditures. If that equation results in a positive number, you’re projecting a profit. If it’s negative, you’re projecting a loss.
Other Notes
All these figures should be calculated both on a monthly and annual basis. Many businesses have seasonal peaks and valleys, so it’s important to account for that in 2022 budget projections. That way, you don’t panic about a naturally weak March and go spending all the excess cash from a bumper September. Those two months might just offset each other every year.
It’s also important to keep in mind monthly cash flow, which is how much money actually is flowing in and out of the business. You might project a profit for the full year, but if you don’t properly manage your finances on a monthly basis, you might not have real, hard cash from which to pay vendors or landlords.
And remember: Writing a small business budget is just a waste of time if you don’t use it throughout the year to monitor your progress. This is a guide to the year ahead. But it’s only that – a guide. Business’ situations frequently change, so you might need to update your expectations as the year unfolds.
Let Us Help You With Your Budget
If you’re still unsure about being able to put together a realistic 2022 budget, or you’re worried about other aspects of managing your business’ finances, we can help with that, too. McManamon & Co.’s outsourced CFO, accounting and bill pay services include budgeting, financial planning, forecasting and cash flow management, among many others.
Don’t wait for 2022 to plan for 2022. Call us at 440.892.8900 or contact us online today to get help writing your 2022 budget.
Tags: accounting, budget, McManamon, small business | Posted in accounting, McManamon & Co., small business