Small Business Budgets What are the components and why are they important?

Personnel Facility Cost Equipment Materials/Supplies Travel Expenses (Fixed and Variable)

Personnel What? The people who work for a particular company or organization Why? Hiring good employees is not only important to business, it’s essential. Employees are the heart and soul of a business; they are the mechanism that makes a business run; they are the breath of life that enables a business to be something more than an idea. A business cannot run unless someone (employees, in this case) is doing the work.

Facilities Costs What? Costs that are related to your location, including your lease, utilities, construction, and costs for preparing the facility for your business use. Why? Keeping your facility costs low is a great way to lower your expenses and increase your profit. One way to do this is by starting your business at home. If you cannot start from your home, then look for facilities that will be as inexpensive as possible. *Negotiate a deal with your landlord that will make your utilities costs part of your monthly lease payments.

Equipment What? Tangible property (other than land or buildings) that is used in the operations of a business. Examples of equipment include devices, machines, tools, and vehicles. Why? Equipment costs can be kept low by leasing equipment rather than buying it, and by buying refurbished or used equipment rather than new. If you are handy, you might be able to find low-cost deals on equipment in need of repairs. Consider renting office furniture for your first year rather than buying.

Materials/Supplies What? Things needed to produce or manufacture a product or service. Why? Your product material/supplies costs are important to your bottom line. Try to find the best quality product materials at the best costs possible. If you can commit to large quantities over a long period of time, then you can sign bulk purchasing agreements that will save you money. Ask vendors about return policies for products you do not use or sell.

Travel What? Expenses that include air travel, local transportation, per diem mileage allowance, lodging, moving, and other non-labor expenses. Why? It is important to plan for and be aware of travel cost, as they can quickly eat aware at a budget and decrease profits.

Expenses – Fixed and Variable What? Fixed expenses do not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses that have to be paid by a company, independent of any business activity. Example – rent or insurance Variable expenses vary with output. Generally variable expenses increase at a constant rate relative to labor and capital. Variable costs may include wages, utilities, materials used in production, etc. (Variable expenses increase with sales revenue)

Expenses – Fixed and Variable… Continued Why? It is important to distinguish between these two types of expenses. This is important because most business planning activities require that expenses be easily segregated into these two categories. Those managing businesses soon learn how crucial it is to track expenses in a way that helps to make planning, forecasting and bidding as easy as possible. *Some expenses may have both fixed and variable elements. For example, a company may pay a sales person a monthly salary (a fixed cost) plus a percentage commission for every unit sold above a certain level (a variable cost).

Let’s Review… What are the components of a small business budget? Personnel Facility Cost Equipment Materials/Supplies Travel Expenses (Fixed and Variable)