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How to Create a Small Business Budget

Creating a small business budget helps you stay within your means and either remain or work towards becoming cash flow positive. A budget helps you understand what you have to use towards growing your business, purchasing new equipment and hiring new employees. Creating a sound budget will prevent you from accidentally overspending and can make the difference between your business staying afloat or sinking. Here are a few things to keep in mind.

Sales

In order to successfully create your budget you’ll need to review your income statements and see how much revenue your company is earning as well as necessary expenses. This will require that you estimate your future revenue based on figures over the last year. Your estimate should be conservative in nature and be a realistic portrayal of what’s achievable. If you are just starting out and haven’t been in business long enough to use data from the previous year, do some market research or speak to others in the same industry to create an educated guess.

Expenses

This part is just as tricky as estimating future sales. Factors like inflation, increases in price, and the need for more of a particular utility, service, or material can vary over time. These costs should be divided depending on their variability into categories such as semi-variable, variable, or fixed.

  • Fixed-These expenses remain the same regardless of the amount of product or service that you produce. Rent, insurance, leased furniture or car payments are good examples of fixed expenses.
  • Variable-This type of expense directly correlates to how much product you are producing and is a reflection of the materials used, freight or inventory.
  • Semi-variable-These costs and expenses may need to fluctuate depending on how your business is doing. They include items like marketing, salaries and telecommunications.

Profits

Profits are variable but can be estimated by subtracting your projected expenses from your projected revenues. This is the amount of money you have to expand your business, purchase new equipment or software, provide employees with bonuses or raises and add staff. If you’re uncomfortable with the calculated amount, contact an accountant, banker or trade association for their input.

Drafting your Small Business Budget

Your budget should be drafted for an entire year. Conservatively estimate your revenues and expenses for each month and list them in your budget. Calculate your gross profit by estimating the cost of the goods sold (goods purchased and/or manufactured, shipping charges, beginning inventory) and subtract it from your sales revenues.

Be prepared to make adjustments to the budget as necessary for things that occur over the course of the year like hiring employees, increasing sales and increasing costs. Should the economy change over the course of the year and result in reduced or increased sales, you’ll need to make an adjustment to your budget. For example, if you estimate that you will have revenues of $120,000 per year or $10,000 per month, but you’re only earning $9,000, then you need to change the monthly figure for future months to $9,000 or get on the horn and sell more products and services.

A budget is a plan and it’s a useful tool to keep you on track. Be sure to adjust it if you see trends that are either financially positive or negative. While this may seem a bit nerve-wracking at first, as you get used to creating and adjusting your budget over time it will become second nature.

Serve Your Customers Instead of Selling to Them

If you want a successful, sustainable business you’ll need to serve your customers. Serve Your CustomersSuccessful leaders don’t sell products or services. Instead, they focus on serving their customers with a product that they are both passionate about, and believe will benefit their customers. The process is relational, not transactional.

The act of serving instead of selling involves a focused four-step process. Everyone who is considering a purchase will go through each of these steps regardless of the price of the item. Obviously, the time to proceed through each step increases and is generally correlated with the product price. The four-step process includes:

1. Qualification
2. Rapport
3. Education
4. Close

Qualification

A qualified prospect has money, time, a need or want, and the power to make a decision. If you’re talking to a buyer that doesn’t have all four of these things, then you’re trying to make a sale to an unqualified person. If by chance the sale does occur, you will have a higher probability of a product return, canceled contract, or an unsatisfied customer. Always ensure that you’re working with the person who is qualified to make the purchase.

Rapport

The second step of the buying and selling process is to build rapport. Building rapport includes professionalism and a polished attitude. You need to find common ground with the person that you’re trying to sell to. Networking and referrals can help to establish rapport in advance. When your customers are willing to tell their friends about the great service or product that they’ve received from you, the amount of rapport building that you have to do is somewhat reduced.

Know your target customer. If your customer is very detail oriented, you’ll need to ensure that you know every detail about your product before you discuss it with them. Getting into a conversation about your product without the necessary details is not only embarrassing, but it can cost you the sale. Customers who don’t trust you, your product, and your company, simply will not purchase from you.

Education

The third step of the buying and selling process is education. Know how your product solves your customer’s problems. Be aware of the details, and know your product intimately. Help your customer visualize how your product will make their lives easier.

Be passionate about your product. It is your responsibility to ensure that not only do you believe that you are selling the best product at the best price, but your team does as well. You should also know your competition so that you can point out how your brand is different than your competitors. Don’t trash your competitors. Instead, know how your product compares.

It’s important to note that while this is the third step, many companies are now using educational content marketing to find prospects and build relationships with them throughout the entire buying process. They nurture their customers with useful education and information until they’re ready to buy.

Closing the Sale

Once you have a qualified customer that you’ve built rapport with and educated, it will be natural for them to buy from you. However, before the purchase occurs there may be a moment of increasing agitation or wariness. At this point in time the customer will either purchase a product or turn the other way. If the customer begins to turn away, start asking questions to ensure that you have completed the three previous steps. Verify that you’re talking to the qualified prospect. Make small talk to reassure yourself and the customer that there is rapport. Finally, ask questions to understand if there are gaps in the fulfillment of the previous three steps, and fill them.

Failing to go through all four steps with the buyer creates additional work and may even create backlash. You must take the time to ensure that your buyer is qualified, trusts you, and has all of their questions answered so that you can close the deal.

Zig Ziglar says, “Sales is nothing more than a transference of feeling. If you can make the customer feel the way you do about your product, then your customer will buy your product.” Are customers buying your product or service? If not, which of the steps above should you consider putting more effort into?