4 Steps to building a holiday-friendly budget for your business.
The Holidays are here, and you are headed into the most expensive, and most rewarding, season of the year. Between the gifts, the Secret Santa parties, and the events, we all have expenses coming that you and I both know we have not accounted for. If you are a small business owner, then there is also a huge opportunity to capitalize on extra revenue from the ready and willing shoppers out there. The big question that should be in your mind is, “can I afford the expenditures upfront so that I can make more money in the long run?” That is where the Holiday Budget steps in to save the day. Let’s find out exactly what the Holiday Budget does, and how to build one.
What is a Holiday Budget, and Why Does it Matter?
The Holiday Budget is no different than any other budget in the formatting sense. It will start with your expected income, then subtract expected expenses to arrive at the expected net income. However, the Holiday Season comes with additional expenses for everyone that must be forecasted and considered. Additionally, the Holiday Budget will allow us to plan for the added income that will flow through increased holiday sales and service revenue. So, below is a simple plan to build a foundation for our Holiday Budget.
How to Build a Business Holiday Budget.
1. Create a foundation for budget using 3 months of bank statements:
We begin by using existing business data for your company. Please note that if this is your first budget, I do not recommend searching for industry standards for income and expenses. Your startup is likely running as lean as possible and there are too many variables at play. Download, and print, the 3 prior months of bank statements for your business account and grab some highlighters.
- First, highlight the business income for each month. Sum up each month and then take the average revenue for the 3 months.
- Arithmetic Average = (Month 1 Revenue + Month 2 Revenue + Month 3 Revenue)/3
- Next, highlight the expenses for each month. Here is where we will branch out a little bit. You need to categorize your expenses into established expense accounts for your business. By categories we are talking about; utilities, salaries, and wages, Cost of Good Sold. I have created a PDF tool that is available below. It has a standard list of categories that should be used to find the average cost of your expenses for each category.
2. Add your projected Holiday Income to your average income:
This is where the math gets fun and an entrepreneur sets themselves apart. It’s time to learn how to forecast your sales for a given period. There is a great article about Holiday income projection here: The Added Income.
3. Add your projected Holiday Expenses to your average expense categories:
Just as we projected the added Holiday Income we are going to project the added Holiday Expenses. Remember that we must increase our Cost of Goods Sold by the number of extra units we are going to sell. We may need to increase our wages category so that we can have the help we need to ship out the orders. Service-based and retail-based businesses will likely consider increased advertising to capitalize on customers looking for your services and products. Finally, we are likely going to bless our staff with a holiday event that will increase our entertainment expenses. All this to say that we need to get this projection as accurate as possible. Follow this link to read a prior article on calculating Added Holiday Expenses: The Added Expenses.
4. Calculate the Net Income:
This final step is all in the formatting. Download our simple Holiday Budget from the tools section below. You will start with your total expected Holiday Income calculated in step 2. Then subtract from that the total expected Holiday Expenses found in step 3. We have now arrived at a Net Income, or a Net Loss, for our business if we follow our projection to the number. If your number is positive then you will likely have revenue left over at the end of the Holidays to spend on whatever you desire. If your net income is a negative number then you have a net loss. Be thankful you found this out before spending all the money. Now, go back and figure out where you can trim the budget.
Tools for the Trade:
Download these tools below. You can print them off and use them just as they are or use them as a guide for creating your budget.
I highly encourage you to print off the sheets above, or make your own in excel, and get to work on your budget. Remember, large companies became large companies because they diligently watched over their money in the beginning. Once you have completed your budgets reach out to us on Facebook or Instagram and let know how it looks. We would love to help with any questions that you might have. Now, get out there and achieve your revenue goals for the Holidays.