Creating an expense budget for your creative or handmade business helps you not only make the dollars you spend work for you, but also prevents your dollars from flying out the door! It also provides you with the amount of your fixed costs that you need to pay each month or year – even IF you have NO income!
Welcome to Part 3 of the Budget series.
In Part 1, we had an introduction to budgets and how a budget is about more than just saying NO to that lovely, soft, squish yarn that’s on sale and enticing you to buy it..
In Part 2, we delved into creating a revenue budget so that you can set income goals for yourself and your business. Hopefully, you took my advice and started creating a spreadsheet for your revenue goals.
This week, in Part 3, we’re going to go knee deep into creating an expense budget so that you can make the money you spend work for you and not just fly out the door willy nilly – leaving you in shock at tax time next year.
I’m betting you’re wondering just HOW to go about creating an Expense budget….
Oh yes, totally exciting stuff (well not really – but pretend it is, OK?)
You can either create a new spreadsheet and call it Expense Budget or you can just add this to the bottom of your Revenue budget from last week. Either way – the choice is totally up to you.
(Don’t fret if you’re brand new to this whole creative or handmade business game – you can still create these budgets. It just means that at this point it’s all guess work because you don’t have real numbers from last year to compare to.)
On your mark. Get set. GO!!!!!
Create a simple spreadsheet with column headings of:
- Annual Budget
- Individual columns for January through December
- And, 2020 totals
Add formulas to do the math for:
- Monthly expense x 12 = Annual Budget
- Sum of January through December = 2020 Totals for everything in a specific expense category
- Total Expenses = everything in a specific column
When you’re all finished, it should look something like this.
Next, (and this is the hard part). In the Category/Expenses column make a list of all of the fixed monthly or annual cost of the things that you pay for in order to run your business – EVEN IF YOU MAKE NO SALES OR INCOME.
If you’re brand new to this whole handmade/creative biz thing, you might find this part a little dicey – but do the best you can and include things that you plan on purchasing (like a subscription or membership).
Now, if you’ve been a handmade/creative biz owner for awhile and have a P&L from last year – DO NOT look at last years numbers just yet. Just make this list of fixed costs.
Your spreadsheet should now look something like this.
See those numbers in yellow? Well, that’s what it costs you to run your business (without any extras) even if you have no sales or income on both a monthly and yearly basis.
If you have numbers in a P&L from last year, go take a look at the amount JUST in Total Expenses.
- Are you shocked or on target?
- Where did you spend the most money?
- Did you use the things that you spent the money on?
- Use those numbers to determine what is necessary vs. what was just ummmm…. impulse spending!
NOTE: I’ve not included any COGS numbers because those amounts simply vary too much.
Come back next week and we’ll put this whole revenue & expense thing together to come up with a reasonable overall budget and how you can use these numbers to determine what your fair hourly wage is.