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September 26, 2018 3 min read

It’s important to start budgeting for your handmade products business because it gives you a good baseline so you know where to start. Having a budget will help you figure many things like, how much money you have at that time, how much you will need to spend, and lastly, how much you need to collect to meet your goals. Those are the most important reasons. However, there are reasons that may be important depending on your situation. Someone like a banker may want to see a what your budget is when you ask for something like a loan. Your staff should also be briefed on the budget so that they understand the businesses goals and future.

A budget can be used to show some of the following:

  1. Funds needed for materials and/or labor.
  2. Total start-up costs, for a new business.
  3. Costs of operations.
  4. The necessary revenues to support your business.
  5. A practical estimate of anticipated profits.

How to Start Budgeting for Your Handmade Products Business

To create a business budget you need to account for your profits and sales. For a business that is just starting up, you should begin by roughly calculating what kind of profit you would be happy to see in the approaching year. Make sure the estimate is a realistic amount. If you have been in business for some time, take your businesses latest financial statements and use them as the base for creating your profit and sales targets. It's important you begin with profits and sales is because the information from it will push the rest of your rough calculations for capital expenditures, expenses, and costs. Make sure to consider things that might influence your sale numbers. Some of those factors could be the loss of an important customer, and/or the economy.

What else do you need to consider?

Operating expenses

Make sure to also compute operating expenses. When calculating operating expenses it is great to start with your financial statements. The financial statements need to include a list of item expenses you gained during the past year. That includes things like taxes, salaries, rent, wages, utilities, postage, travel, and research, etc. If you are just starting a business and don’t have some of those things, complete a rough calculation.

Profit margin

Next, you’ll need to calculate gross profit margin. Figuring out gross profit margin is harder if you’re just starting a business compared to if you have been in business for a while but it’s doable. You need to roughly calculate the cost of your items sold. That would consist of things like initial inventory, what was manufactured, what was purchased, and shipping charges.

Take time to recalculate

Make sure you take time to recalculate figures. When you get you estimates back you may feel the need to change your estimates to get to your targets. The readjustment may mean you have to purchase fewer supplies or you need to hire a few new employees. After you make your changes you will need to run the numbers you have again. If you’re having problems with your budget consulting an accountant may be your best bet. Either way, make sure you are using realistic figures so you are getting the correct numbers back. Making sure you get the right numbers is crucial in guiding your business. Budgeting is not a process set in stone. So that may mean halfway through the year you may have to run the numbers again and readjust.

Bottom Line

Budgeting can seem like a difficult process but it really isn’t! This article contains information to make the budgeting process as easy as possible for you. You can write down the checklist given or print it out and start planning out your budget.