Daily Archives: August 27, 2010

Does My Small Business Need A Business Budget?

The picture is what happens to a business without a budget.

We talk about having a family budget, or the family finances fail.

This principal applies to a family business even more.

Most people open up their small business on Monday, thinking they will pay themselves Friday with their first week’s profits.

That is not a realistic business budget.

As a bankruptcy attorney, I see the methods that fail.

Any time someone asks me about opening a small business, I as what the business budget is.

That is, what are the monthly operating expenses.

How much is the monthly fixed overhead?

If you do not even know what that means, put that small business idea on hold until you take some basic accounting or business classes.

Fixed overhead is what it costs to operate the business no matter what, if you produce no product, or buy no food for your restuarant.

Building rent, debt service, things you have to pay whether or not you open your doors.

My advice is, assume no revenue.

Assume all the checks you take bounce.

Assume all the charge cards are charged back.

Do not open the business until you have enough money saved to 1) live on for a year if the business makes nothing, and 2) to operate the business for one year without any receipts.

Then, after a year, you are still solvent, and can pull the plug if it is not working.

And figure out what that point is, when you will stop throwing good money after bad.

Many of my clients run their small business like a compulsive gambler, borrowing more money to throw into the business to get back the money they lost at startup, or covering the first year losses.

Start with a realistic budget, don’t forget worker’s comp insurance, payroll tax liability for your employees, other insurance, other mandated government costs, like permits and licenses that apply.

Have a business budget, and stick to it.

Does My Small Business Need A Business Budget?

Or, you may be seeing a bankruptcy attorney.