As a new manager, there are so many things to figure out, including how to create and manage a business budget. This can be an intimidating task, especially if you have never done it before. Since managing a budget is essential to the success of any business, this can put a lot of pressure on a new manager. Many managers haven’t formally been trained to handle finance spreadsheets, track their expenses, or how to make mid-year adjustments. Therefore, before delving into your new role, consider these tips to help you more effectively manage your company’s budget.
Invest the Time to Learn
When you are brand new to something, you can’t be afraid to ask questions and seek information. It is far better to ask questions up front than wait for someone else to point out and correct your mistakes. If your business has a finance person, request some time to meet with them one on one and ask them to train you to do things according to their specifications. If there is not a finance person, ask the person who hired you to spend some time training you so you can make sure things are done correctly. In addition to on the job training, consider taking a finance and budgeting course to further your skills. Be willing to spend this extra time learning the ropes, as this will prevent mistakes and headaches later on.
Examine Your Revenue
The first step in familiarizing yourself with the company budget is to look back at all income sources. Make a list of each income source so you can get an accurate picture of how much money comes into your business each month. Be sure to look at all revenue, and not just profit. Profit is what remains after all expenses have been deducted and you will figure this out next. First, it is important to identify all income streams and gather data for at least the past 12 months to give you an idea of your average income. This will also help you identify any seasonal changes so you can prepare in advance for better or slower months.
Deduct Fixed Costs
Once you know your company’s monthly income, it’s time to add up all of your fixed costs and deduct those from your income. Fixed costs are those costs that are recurring and are necessary in order to run your business. Examples of fixed costs include rent, supplies, debt payment, payroll, taxes, and insurance.
Determine Variable Costs
In addition to recurring costs, you probably noticed some variable expenses within your business as well. Variable expenses are costs that may change or fluctuate depending on your needs. This might include things like utilities, replacing old equipment, marketing costs, professional development, office supplies, etc. During months when your income is lower, you will need to decrease your spending on variable expenses and you can increase your spending on these items during more profitable periods.
Have a Contingency Fund
Just like in your personal life, we all know there are times when unexpected expenses arise. You are getting ready to go on vacation and your car stalls or the holiday are approaching and your refrigerator goes out. The same thing happens in business so you will need to have a contingency fund set up for when the unexpected happens. During months when you have a surplus of income, be sure to set some of it aside into your emergency fund.
Keep Track of Profit and Loss
Now that you have all of this information on hand, you need to create and keep track of your profit and loss. Each month you need to add up all of your income and then subtract all of your expenses. At the end, you are hoping for a profitable number. If you don’t have a positive number, you know you will need to make some adjustments in order to get back on track for next month. Your profit and loss statement is the key to successfully managing cash flow in and out of your business.