How to Use Categories in a Business Proposal Budget

Your business proposal tells the bank or investors the profit potential of your business. For these projections to work, you enter amounts in the budget categories. Budget categories help you organize your thinking so your business runs smoothly, so use them to help you avoid problems in running your business.

Instructions

1. Learn the basic budgeting categories from a reputable source such as the Small Business Administration (see Additional Resources), which has a free online course on writing a business plan. These categories include labor, supplies, equipment, rent and utilities.

2. Scrutinize labor costs, which determine not only the cost of personnel but also how much you can produce. Hiring two employees lets you produce so many widgets; hiring four doubles the number of your potential widgets. However, it also doubles your risk because you could have four people sitting around doing nothing. Use this category as an assumption when you estimate monthly production.

3. Calculate the cost of equipment, including the cost of maintaining the equipment over time. Equipment expenses vary with the type of business, but often are fixed, then amortized over a period of years. The more expensive the piece of equipment, the longer the period of amortization.

4. Figure supplies for an average month, then add 10 percent for stock, waste and monthly flux. Supplies are in some ways the most volatile of expenses, likely to rise over the course of a year, eating into your profit margin. You may end up spending a lot of time searching for cheaper suppliers or figuring out how to do more with less.

5. Determine cost for space: rent, utilities and the like. Except for street vendors, most businesses need a place in which to work and nicer places nearly always cost more. Try for less glamor and more space because cramped businesses have trouble expanding even a little bit. Use your negotiating skills to maximize your return on this category of expense.