Or, maybe it requires expensive, highly specialized tools. This can be as simple as a laptop and cell phone, printer, paper, and ink. You likely have a list of required equipment for employees to do their work. Here’s a quick rundown: Small Business Operating Expenses It’s important to reiterate that business budget categories aren’t one-size-fits-all, but there are a few categories that are frequently used. You also need to think about market factors and price fluctuations from vendors for parts and inventory. When determining the percentages for various budget categories, look at your business history, profit & loss statements, anticipated sales revenue, and industry trends. These will serve as a quick-reference as you work on financial goals and review progress. If assigning percentages to your budget is new for your business, we highly recommend taking the time to do a retrospective review of your business budget and financial statements over the last year or few years and calculate percentages for your various categories. Increased revenue is obviously a financial goal for every organization however, other common goals that you may set for your company can include better profit margins, decreased costs, and improved cash flow.īy assigning percentages to these various categories, you can easily have a soup-to-nuts comparison over previous years and see where you are tracking against your goals. Small Business Budget Percentage Breakdown Guidelinesīreaking down your budget by percentages is a great way to set financial goals, understand cash flow from the last year, and plan for next years’ business needs. brick and mortar), you will likely have different budget categories to support your business plan. While we love the Profit First methodology, we understand that business budgeting isn’t a one-size-fits-all scenario, and depending on the age of your company (start-up vs. Michalowicz advocates for having a separate bank account for the categories of income, profit, owner compensation, taxes, and operating expenses. He suggests that this strategy will ensure profitability and if there isn’t enough leftover after profit and compensation to cover expenses, then expenses should be cut. The Profit First system highlights that business expenses should be no more than 30% of total revenue.
Small business finance expert Mike Michalowicz developed Profit First, a methodology that states business owners need to allocate income and prioritize profit prior to paying expenses.
In this post we will focus on guidelines that can help you determine how best to assign percentages to your various business budget categories. However, understanding if your company is in good health based on these numbers can be difficult and many small business owners often find themselves scratching their heads as to what percentage of their revenue should be allocated to categories such as operating expenses, taxes, and even their own compensation.Īssigning budget percentages can help you understand not only how your business is performing year-over-year, but where you can make cuts (if needed), and where you can increase spend. Serving as a bill of health for your business, your budget provides insights into your revenue, expenses, and cash flow.
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