Six Steps to Budget Your Small Business Idea
Do you have a great business idea? Fantastic! However, do you know the saying that it costs money to make money? It is true, and one of the most important steps you will take in creating your business plan is set up a budget. What will it cost to make your idea from the concept it is now and put it into action? Where will that money come from?
When you are considering this, it is vital that you keep in mind the three phases of business: production, distribution, and marketing. Keep reading to learn more.
1. Look at the Cost of Goods
The first thing you need to look at is the cost of goods. You will either have to buy the products you are going to sell from another supplier, and make them yourself, or hire other people to create them for you. This is the price of the products you offer.
This principle does not apply to physical goods that you sell; it also applies to services you provide. You either need to provide the services for yourself or hire other people to give those services. What you are actually offering is your time and ability.
This is genuine in both cases. When selling products, you are charging for the materials and time it takes to make them into something else. In the case of services, you are selling your time and the ability it takes to perform those tasks.
This is the cost of your goods and should be figured in both time and real dollars.
2. Do not Forget Labor
Sometimes it is easy to merely measure the cost of goods or services and forget about the labor it takes for other parts of the task. For instance, it will cost you money to get something delivered to your customer; it is whether the time it takes to package and ship it. It is also commonly referred to as a shipping and handling charges, or the time it takes to create a report, write an email, edit photos, or whatever other tasks you must do.
While this labor is a production cost and part of the cost of goods, it is often an overlooked portion of the situation, and this cost overrun ends up eating into the profits from your endeavor.
3. Getting it There
Referred to as distribution, this is the method it takes to deliver your goods and services to the customers. In some cases, this is merely the shipping and handling as mentioned earlier, although you should always build in a level of profit into this cost as well.
In the case of services, this includes transportation costs but can consist of other subtler costs as well. For instance, if you are a landscaping company, your service is mowing lawns and other landscaping tasks. The price to get those services to the customers includes the maintenance and gas for your vehicles and even buying new ones, trailers, and commercial drivers’ licenses and training for your employees.
Even if you are a photographer or freelance writer, this cost includes software, cloud services, computers and also the cost of internet access. Correctly figuring distribution costs can be the difference between profit and loss.
4. Marketing and Awareness
Once you have figured out how you will distribute your goods and services, customers will need to be aware of you and know where to find you. This consists of three distinct things; marketing, advertising, and brand awareness. Marketing is the efforts you do that often do not cost you money other than materials, but publicize about your business. This includes business cards, flyers, and content marketing on the web like blog posts and link building.
Advertising is exposure that you pay for. This includes things like Pay-Per-Click ads (PPC) on Google and other search engines, Amazon, and other advertising services. This also includes print ads, billboards, and other places where you pay for your brand, images, and facts about it to be displayed.
Brand awareness usually comes from the other two things in this list along with word of mouth. This is a part of your reputation management. Customer reviews, referrals, and feedback are more public now than ever, before with online review sites and social media. Managing your business is extremely vital to your trade success.
5. The Cost of Money
Another part of your budget is understanding the cost of money. Not only you must know how to get a business loan, but you must also understand the budget for the cost of that loan. The total cost of borrowing that money includes not only the interest rate but origination fees and other fees you might pay as part of that loan process.
The cost of money is not just financial. Venture capital may come with certain restrictions and requirements to share a part of profits long term. Some bank loans will restrict what actions you can take financially, until the loan is paid off.
A part of your budget is not only the cost of goods, services, distribution, and marketing, but also the cost of using other people’s money to grow your business.
6. Planning for Tomorrow
Besides the cost of borrowing, a necessary part of your budget should be to plan for tomorrow. This implies that you require putting money in savings, have less liquid investments like CD’s and invest in stocks and bonds that will mature and make you money over time.
This also means investing in new equipment that will benefit you in long-term, equipment lease options, and accounting and tax planning. The future will fill with expenses, and that is a good thing. It means you are growing and making money, and also you must be prepared for those expenses.
The budget for your small business idea will be a living and growing document that will change over time. If you keep these six things in mind, budgeting for your small business idea will be both more straightforward and more efficient.
What else stands in your way of creating a balanced business budget? Are there any tips we've missed? Leave your comment with your thoughts in the section below.