We’ve already established the importance of creating budgets. Now we are going to look at the actual process of creating a budget. We have got 6 tips for you.

1.   Use 2024 actual numbers as a starting point. Using current actual numbers helps you to see any trends etc that are happening in your business. It gives you a real time base. From here you will adjust things based on percentages etc.

2.   Determine your revenue goal. This is a very important number. This number is what will help to create a lot of other numbers in the budget. I have another blog that asks questions to help you think through what this number should be. Basically its very important to have a reason why you have that revenue goal not just a number that you pull from your boots.

3.   Adjust Costs of Goods Numbers. As costs of goods numbers are directly related to the revenue sales, You will want to increase this number by the same percentage that the revenue goals have been increased. If your revenue goal is 25% higher than 2024’s actuals then your Cost of Goods numbers should also be a 25% increase from 2024’s actual numbers.

4.   Adjust Salary/Wage Numbers. Take a look at each employees salary/wage and determine what increases will be given in the year. You also will need to determine if the increased revenue will call for additional employees. If additional employees are needed those salaries/wages will need to be added in so that your budget is prepared for the increase.

5.   Adjust Overhead Numbers. Overhead numbers normally fall into 2 categories. Fixed and Variable. Let’s talk fixed first. Fixed overhead Expenses are numbers like rent, mortgage, utilities, subscriptions etc. These are the expenses that don’t increase or decrease because of increased or decreased revenue. You rent is the same no matter how much revenue you can create in the rented space. You will want to make sure and enter any increases that you know are coming for these items. Example, most commercial rent leases have a built-in rent increase. For the variable expenses are numbers like advertising, office expenses, auto expenses, etc.  These numbers will vary as the revenue varies. You will want to increase these numbers with a similar percentage as the revenue percentage increase.

6.   Plan for Profit.  One of the reasons we are in business is to create a profit so that we are then able to fulfill the dreams that have been placed inside us. Your budget should have a 10% to 25% profit. If you have calculated all your numbers and you don’t have this as a profit, then you need to look hard at your expenses and determine where you are able to decrease spending. Or you may need to reevaluate your revenue goal.

I trust this gives you a starting point for creating your 2025 budget.