Many small and home business owners do not create budgets for their businesses, and instead just try not to spend more than they make. But, a budget is a good idea for all businesses, and if you want to get any kind of financing, you must have one. In this article, we will discuss the revenue or income budget.
A revenue budget is actually a projection of what you hope to make. It’s the “top line” budget, or your income before any expenses. These projections are quite educated guesses, and not just random numbers you “make up”. However, when you are just starting out, the line between educated guesses and stabs in the dark can sometimes overlap a bit. Gathering data to base your revenue budget on can be difficult, but it is not impossible.
To start creating your revenue budget, first determine what the average customer might spend in one visit. (It is okay to guess at this, but sometimes industry associations have this information, or you may be able to find it through research.) Then, decide how many customers you will have in one day. Multiply the average spend by number of customers and you have a targeted daily revenue. To get weekly and monthly budget projections, just multiply your daily revenues.
If you have a more random income-generating business, when you do not have daily income, such as party-plan sales, freelance writing, or consulting, then do a similar exercise, but you may need to use weeks or months instead of days, and you may not have an “average spend” but an hourly rate.
Whatever method you use to arrive at a realistic income budget for your first year will be fine. As you actually start generating revenues, compare them every day to your projections and see if you need to scale back or increase. Don’t skip this part. Tracking your actual versus projected revenues will teach you so much about your business that it is an essential exercise.
On the other hand, if you have been in business for awhile, look over your past revenues (your bank statements will help jog your memory if you have not kept good income records.). Then, look at trends. Are you making more or less now? How do holidays affect your revenues? How about seasons?
Finally, when trying to decide how much you should expect to increase your revenues year over year, look at economic indicators for your country, state and locality. And, find out what your industry associations are saying. (Do an online search for “your business + associations”, such as crafts + associations, wedding + associations, and so on.) Some businesses flourish when the overall economy is down, and vice-versa.
Once you know the bigger economic picture, you can then take your last year’s revenues and either increase or decrease depending on how you think you will perform in the market. Again, this is part art and part science and the more you do it, the more “scientific” you will make it seem.
Knowing your actual and possible revenues helps you make better decisions as to ordering, inventory, hiring staff, conducting marketing campaigns and much more. And, once you know your revenues or income, you will then be ready to create your expense budget, which I will explain in a future article.
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