When you create an overall budget for your business, your Revenue and Expense budgets get “married” – so to speak.
Together they can tell you all kinds of wonderful financial things about your business including:
- what your fair hourly wage is (or should be!),
- how much you should be setting aside for taxes,
- helps you to calculate an amount that you want to reinvest in your business (so it can grow)
- and, how much you have to sell in order to meet your desired annual income
All this month we talked about budgets (exciting stuff I know :-D)
- In Part 1 – we had an Intro to Budgets
- In Part 2 – we talked about creating a Revenue Budget
- In Part 3 – we talked about creating an Expense Budget
Are you ready? Let’s create a budget!
You’ll want to open that spreadsheet that you created and used in Parts 2 & 3. (If you’re just joining us, please go back and read all 3 of the preceding parts before just jumping into this post or you’re going to be totally lost).
So, here we go……
Create a new tab or sheet called “Budget-Fair Wage”
These are the things we want to include:
- Desired Annual Revenue
- Monthly Income to meet desired goal (formula = desired revenue divided by 12)
- Hours available to work
- Monthly (formula = annual hours divided by 12)
- Annually (weekly hours times 52)
- Fixed Expenses
- Yearly (formula = monthly times 12)
This is what your spreadsheet could look like up to this point.
Now we’re going to add a section for calculations, and these are the things we’re going to determine:
- Annual Expenses
- Desired Income
- SUBTOTAL (formula = annual expenses PLUS desired income)
- Taxes at X percent. You can look at last years tax return to determine your percentage based tax bracket OR you can use 30%. This will provide you with a good estimate of what you’ll need to set aside for the tax man.(formula = desired income times 30%)
- Percentage of income to reinvest in business. Determine an amount or percentage of your desired income that you wan to set aside to reinvest in your business in order for it to grow. Let’s just say 15%. (formula = desired annual revenue times 15%)
- This is what you need in Annual Sales. (formula = Subtotal PLUS Taxes PLUS Percentage to reinvest).
- Monthly Sales. (formula = Annual Sales divided by 12)
- Fair Hourly Wage. (formula = Annual Sales divided by Annual Hours).
Here’s your completed spreadsheet.
Now, let’s plug in some numbers (and I do suggest you use my numbers to make sure your formula’s are correct:
- $12,000.00 a year or $1,000.00 per month of income to add to the family budget,
- 20 hours a week or 1,040 hours per year to spend on all of your business related tasks – including making your products
- fixed expenses of $34.95 per month/$1,064.28 per year
- want to set aside 30% for taxes or $3,600.00
- Want to reinvest 15% of income in business growth or $1,800.00
Your budget will tell you,
- that you need to have annual sales of $18,464.28 or $1,538.69 in monthly sales
- and, your Fair Hourly Wage needs to be $17.75
Here’s the completed sample budget.
Obviously, your numbers are going to be different and a budget is just an educated guess and a goal. There are a lot of variables in life and your budget, so nothing is every going to be 100% spot on.
I also didn’t include anything for Cost of Goods Sold, because this too will vary. You could have a bunch of supplies (that you’ve already paid for) in inventory that you plan to use before spending any more money.
What did you think about this series on Budgets? Was it helpful?
Yours in yarn & numbers