Whether it’s a home business franchise, an international corporation, or an individual person, anyone with any kind of cash flow and a fair degree of sense has to establish a budget. Without one, money becomes a chaotic mess that is not only hard to manage but is also a terrible and unnecessary source of personal stress and anxiety. Yet getting a budget started on your own can prove to be difficult. If succeeding in business and avoiding the painful headache of being overrun by your financial circumstances both sound like things you’re interested in achieving, here are a few helpful steps to developing a functional budget.
1. Gather Some Information
Whether you’re just starting a franchise business or have been in operation for awhile, scraping by without a budget, here’s where to begin. Obviously you want to know something about your own business, so go back through whatever records you may currently have and look initially at two things: cash inflow and expenses. But don’t stop there. Continue digging for information by looking at market analyses concerning your industry as well as whatever other research you can dig up about comparable companies in your area. Particularly if your business is just starting out and you don’t have any personal records to look at yet, this is very important.
2. Categorize All of Your Inflows and Expenses
Take those general numbers you have from your own records and those from the industry and subdivide the expenses into all the specific categories in which they’re spent: marketing, equipment, phone, computing, client meetings, etc. If you have multiple streams of revenue in your business, as does a Vehicle Tracking Solutions franchise, then do the same for cash flow, categorizing where it comes from. In the example of Vehicle Tracking Solutions, a premiere seller of GPS tracking equipment for corporate car fleets, cash flow would be broken into two categories: equipment sales and network services.
3. Make the Forecast
This is the whole point of having a budget: knowing roughly what you’ll have in the future; how it has to be used; and how, therefore, today’s money needs to be spent.
With that categorized list of your expenditures and the regular expenditures of others in hand, you should be able to get an idea of generally how much you spend in each aspect of your home based business each month (or week, if that’s how you choose to break it up). If your records go far enough back, you may even be able to get an idea of how much those amounts fluctuate from season to season. Whether you have fluctuating amounts or one solid average, expect to go a little over that and write the forecasted amounts into your budget in each category. Then, at the bottom of each month, be sure to include that month’s income and expense totals as well as the cumulative expense and income totals to-date.
Some budgeting pros recommend looking 12-24 months out, but certainly don’t go less than 6, or there is really no point in developing the budget in the first place. What you’re trying to do is establish whether or not the business can succeed in the long run if it keeps on going the way that it’s currently running and, if not, what that success will take.
Whether you’re initiating an American Vending Systems business, vending caffeinated treats from coin-operated machines, or starting up a TVME work from home business, selling computerized media centers to local restaurants and pubs, there is one thing that every business must do before all else, and that is build an emergency fund. So as a general rule of thumb, make that the priority on your forecasted budget: building up enough extra money to at least see your business through 6 months of hard times.
4. Make Any Necessary Adaptations from Month to Month
As we said, franchises can often have fluctuations from month to month or season to season, and sometimes those fluctuations can put your business in the red. As you look at your projection, if there seem to be times of year in which your income drops below your expenses, make sure to prepare for those times of scarcity by cutting back on unnecessary expenses in those months and taking more funds out during stronger months and seasons.
The Purpose
The ultimate reason for establishing a budget (aside from getting rid of the unwanted stress associated with not having one) is twofold. One, a budget will help you determine whether your business can make it in your area and market. And two, it will help you lay out the necessary path for reaching success once you find that it is indeed possible. And aside from the basic principles and reason behind budgeting, there is no one set format in which it has to be done; if you do better with a pen and paper, then you can do it that way, or you can use a program like excel if you’d prefer. And if you have questions, your franchisor is always will to help.
Business opportunities aren’t always easy to manage, but doing the little things to get them in order are well worth the effort.
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