So far this week we've talked about our personal financial journey at home, what a budget is and why you should consider creating one for your business, and how I broke down the numbers from years past to come up with what we hope is a realistic budget for the business.
Today we'll talk about what we included in this magic budget of ours by breaking it down a little bit further.
Our budget seriously accounts for every dollar that comes into the business this coming year. When Curtis set his goals for 2014 he set an income goal of 175k. We worked with that number as the starting point when we set the budget for the year. Acknowledging that this is a significant increase over 2013 I also ran our numbers on 150K - still an increase over 2013, but one that I think he’ll hit no problem. Doing so helped us to know that we were being realistic.
If the numbers stay the same (but I don’t think they will) this year as last then we will have to re-work a few things and that’s ok. We are using this as a guideline. I am sure that we will have to make adjustments as the year goes on.
Taxes 25% - This one is pretty easy. We are in a 25% tax bracket so 25% of every check that comes in is instantly set aside for taxes. NO QUESTIONS ASKED. I really couldn’t imagine getting to tax season an being slapped with a $15K bill and having no savings for that. It seems crazy. And DUMB!
(Note from Curtis: If you can't save taxes then you're not running a viable business. We've been stuck paying taxes not saved and it's a very painful experience.)
Salary 45% - We looked at how much we’d LIKE to bring home this year (little bit of a dream goal). We also looked at what made our family’s life a little bit more comfortable (a very realistic goal). Finally we discussed keeping the salary the same as it is currently which we have determined is comfortably snug. We set goals for both our reasonable salary increase (June) and our “dream” salary increase (September) and we’ll see if we hit them.
Profits 12-15% - Curtis automatically sets aside 5% that will stay in the business. We are actually hoping this year that the number will be more like 10-15% but again that will depend on what he earns. Why do we do this? It’s kind of like having a rainy day fund. It gives him some breathing room. It means that if for some reason there is a major meltdown and he has to buy a new computer, or give a client a refund (see post series here about when a contract goes bad) then there is money there to cover that without taking food from our mouths.
(Note from Curtis: If you can't save that extra 5% then you're not running a viable business.)
Expenses 15-17% - Expenses are broken down into a number of sub-categories, and I’ll outline them below for you so that you know exactly what we’re counting as expenses. These are basically things that the business pays 100% of. Write off’s - like housing costs, vehicle costs etc. are not counted amongst these items. Our direct business expenses are as follows:
Telus - Internet Connection - we took our current monthly cost & multiplied it by 12 then added a small cushion.
Bell Mobility- Curtis’ Cell phone - he uses this number as his business number. To calculate this number we did the same as above.
Software - This includes monthly subscription based products like Adobe Cloud an his invoicing tools, as well as plug-ins, apps, and other programs used to run his business. Based on last year’s number with a small cutback.
Hardware - Computers, headphones, phones, tablets etc. We have laid out a replacement schedule for some hardware items (like laptops and desktops) and are actually setting a budgeted amount aside every month so that at the scheduled time we will have the funds to replace his equipment as needed. In order to execute our replacement plans properly any “surplus” in this category will be rolled over to the next year as opposed to assumed as profits.
Office Supplies - Paper, printer cartridges, pens, you know, the basics. As you can imagine with the on-line nature of the business we don’t spend much in this area. We based this on last year’s spending.
Advertising - Again this is a pretty small category, but includes dollars set aside for sponsoring events like WordCamp etc. Again based on last year’s numbers.
Bank Fee’s - PayPal, Stripe, and other business banking fees. This is a percentage (about 2.2%) of our TOTAL projected earnings for the business based on the way the numbers worked out last year.
Education - On-line courses, books, conference fees. Loosely based on last year’s numbers, but increased based on Curtis’ goals for 2014. This is one number that will fluctuate depending on what he chooses to pursue as education, and also on his overall income.
Travel - Expenses directly related to attending conferences such as; airline tickets, hotel expenses, meals, bridge tolls etc. Again we tried to come up with a realistic number for this category based on conferences that he was interested in going to and their locations, but this number may also fluctuate depending on the overall income for the year.
Entertainment - Coffee, and any other expenses related to working in a “remote office” ie. Starbucks. Because our master bedroom functions as the Nursery, Bedroom and Office this is what we consider his “rent” to go out and work when the house is chaotic. This is one category that we do keep a close eye on to make sure that we’re not going overboard. In 2013 we were able to cut this category back by almost 1/2 over 2012. We’re planning on using the same number for 2014.
Other - I know sounds nebulous, but there are always miscellaneous things that don’t fall into another category easily. These include things like gifts given by the business, business licenses, etc. We based this number on last year’s expenses and chose to keep it the same. I don’t expect that we’ll spend to the max in this category either.
Whew, ok, that may be more than you wanted to know about budgeting but that is how we’ve done it for 2014. This is a bit of a trial for us having never really “set” a budget for the business and so we have entered into it with an open mind. I expect that as the year wears on we’ll adjust some of these numbers slightly but I do think that we’ve set them realistically enough to see little change.
Have you ever set a budget for your business? What worked or didn’t work for you?