Planning so that there are always funds available for the things you need is an important part of any business. Building a budget and sticking to it can go a long way in keeping your business on track. In this post, we are going to look at a few concepts to inspire you to build and maintain a budget for your Etsy shop.
Calculate Your Costs
Knowing what it costs to run your business is important for two reasons. Firstly, you will want to know exactly how much you need in the bank account each month to cover those costs. Secondly, once you know what your operating costs are, you will be able to see what is left over for paying yourself or investing further into your business.
There are two types of costs you will need to take into consideration. Fixed costs and variable costs. Fixed costs are the costs that stay the same from month to month. This can be things like a subscription for software you use, your insurance, and so on. Variable costs are costs that can fluctuate. These are things like your supplies, which will vary based on your sales or production of new products.
Calculating your fixed costs is as simple as adding up each of these items and arriving at a total. This is your monthly fixed expenses.
Figuring out your variable costs is a bit more complicated. Fortunately, you can lay the groundwork using eRank’s Profit Calculator tool. You may be thinking “Isn’t this tool for determining profit?” and you would be right. The Profit Calculator tool gives you a breakdown of fees, costs, and profit based on the information you enter, making it perfect for seeing all a product’s costs in one place.
Once you have costs for each of your products calculated, you can use that as a basis for determining your variable costs. There are several methods you can use to figure out how much cash you have available for materials and other variable costs.
Of course, how your shop operates is going to play a part in this. If you keep an inventory of products that you replenish as you sell things, you can base your material budget off monthly sales numbers to maintain your predetermined inventory. On the other hand, if your shop does mostly custom or made-to-order items, you may have to be more speculative with your budgeting.
Tracking Your Budget
Whether you’re using a pen and napkin, or your computer, a budget is only useful if you keep track of it. How you track your budget is going to be a matter of personal preference. At a bare minimum, you will want to list out each of your fixed expense items. For your variable expenses, you can track them as they happen.
Using spreadsheet software like Microsoft Excel or Google Sheets, you could do a simple expense tracker that lists out your fixed and variable expenses. Then, compare that against your monthly income to see where you stand.
If spreadsheets don’t do it for you, or you want something a bit more turnkey, there are purpose-built pieces of software that can make budgeting a snap, and even communicate with your bank account to track spending as it happens. One highly regarded budgeting software is YNAB (You Need A Budget). This software connects to all your accounts to pull in income and expenses in real-time. This allows you to track your spending down to the dollar.
Unfortunately, YNAB isn’t free. It is a great option if you want to avoid setting up a spreadsheet, and like the idea of bank account integration.
Sub-Account or Separate Accounts
If you lack financial discipline, or simply want to compartmentalize your business money for budgeting purposes, you may want to consider opening a separate bank account. The sole purpose of using it would be to pay your expenses.
Another option is to use a bank that offers sub-accounts. Bluevine recently started offering sub-accounts that can be set up in a matter of minutes. These sub-accounts have their own account numbers, but all reside within the same main account. This is a great way to visually separate your money for budgeting. It provides a barrier to prevent accidentally spending money allocated for bills.
Be Flexible and Allow Room for Growth
Allowing yourself to be flexible will not only help you optimize your budget but will provide room for growth. As your business changes, your financial needs will as well. If you find yourself with leftover money as the months go by, don’t be afraid to allocate that money to growth opportunities for your business. New equipment, more supplies, or even education.
While sticking to your plan is an important part of the budgeting process, don’t hesitate to remove things that aren’t working. You can always make changes to how you budget as your shop grows.
Set A Goal
Having goals will help you give your budget additional purpose. Perhaps you have your eyes on a new tool for your shop. You could create a note in your budget to allocate a certain amount of money each month to achieve that goal. You could set this money aside into a separate bank account or sub-account if your bank offers that. It might help remove the temptation of spending those funds.
Your goals don’t necessarily have to be a new tool though. You could simply have a goal of growing your revenue by a certain percentage each year. Whatever your goal is, write it down and use your budget to help achieve it.
Put Your Money To Work
Hopefully, the concepts above inspired you to start building a budget for your business that works for you and not against you. Having a budget can help you see potential challenges in your business ahead of time. Allowing you to act accordingly, and can take a lot of the guesswork out of allocating funds.
Do you have any tips for effectively budgeting for your business? Let us know over in the eRank Facebook Group.
Disclaimer: We are not finance or accounting professionals. Always consult with your accountant when making decisions regarding the financial aspects of your business.