Budgeting: the first step to trade business financial freedom
When you’re running a trade business, it’s easy to get caught up in the day-to-day business activities. You’re constantly answering phones, dealing with customers, paying bills, and much more. Mostly, we completely forget about the bigger picture and lose sight of the end goal — financial freedom. The first step is budgeting.
Analysing your businesses finances and expenditures on an annual basis (at the minimum) will pave the way for financial freedom.
What most people don’t understand is there are multiple types of budgets you can take advantage of as a business owner.
Here are our top 2 picks for you to get started:
1. Sales forecast/revenue budget
Your sales forecast/revenue budget focuses solely on the money you predict your business will make for a given period. For example, predicting the dollar value of sales for the next year, broken down by months in that year.
Depending on the type of business, the following topics will need to be considered.
- Past sales
- Pricing structure
- Types of customers (ABCD customer market segmentation)
- Customer avatar
- Monthly or daily targets
- Geographic area you service
- Economic environment
- Sales capabilities of staff (not just their skills but also the number of working days/hours per month/day).
2. Expense Budget
This budget lists the primary activities and expenses undertaken by your business and allocates a dollar amount to each.
You’ll need to consider the following expenses along with any other additional costs your business incurs:
- Vehicle expenses (registration, petrol, servicing, branding & general upkeep)
- Supplier rates
- Mortgages/leases (on property and tools/machinery alike)
- Payroll expenses (both your staff and yourself!)
- Amenities bills.
With your sales forecast/revenue budget set, you can review your expenses to ensure expenses are LESS THAN your sales forecast/revenue budget.
If your total expenses is larger than your forecast/revenue budget, you will need to cut costs ASAP.
These two types of budgeting are only the tip of the iceberg when it comes to financial planning for your business. Interested in learning more?
- Join our Kick-Ass Tradies Facebook Group, for access to trade business specific conversations, tips and resources, plus a like-minded community of tradies.
- Book a 15-minute Game Plan Call with Andy, owner of Dr. DRiP plumbing and co-founder of Lifestyle Tradie, to clarify your priorities and get clear action steps.