How To Create a Budget to Cope With Irregular Business Income

You can try this method to create a budget to deal with irregular income

1.   Work out your monthly Personal Survival Income (PSI) if you haven’t already done so, this is the absolute minimum you can survive on and includes rent/mortgage, food, travel, utilities etc. Include a percentage for saving and don’t forget debts and your annual bills like car insurance divide this by 12 to get a monthly amount.

2.   You should have a separate checking business account into which you receive or deposit all your business income.

3.   Pay yourself a monthly base-line salary based on your PSI at the end of each month and transfer the savings element into a separate personal savings account. This keeps your salary from the business at a regular set amount each month. 

4.   If you don’t make enough income from your business yet to cover your PSI, this indicates that you need to do more marketing, increase your prices (ensure that your pricing makes you a profit and you are getting the cash in from your clients) or get a part time J.O.B.

5.   From my salary, what I do is take out my budget for travel and food in cash each week and leave the rest in to pay my personal bills online. I keep a monthly tick sheet to keep on top of what bills I need to pay and what I have paid.

6.   Hopefully over time you should get more than your PSI coming into your business account and as you are only paying yourself a regular base-line salary you should have money left in there to pay your business expenses, taxes and to reinvest into the business.

If you get regular monthly management reports this should show an estimate to put aside to pay taxes. Most business accounts in the UK come with a savings account and this can be used for taxes. Any other surpluses can also help fill in for irregular income to keep your salary at your PSI level each month. 

It’s your management reports that is going to tell you what cash came into the business how it was spent and what profit you made each month. But be careful, cash and profit are not the same thing in a business and people often wonder why their accountants tell them they made a profit but they cannot see the money in their bank account.

Remember, that when you create your business budget you should include your own salary; a lot of new business owners neglect this and then wonder why there is no money left over to pay themselves.

I hope this helps. 

A good book to read is:
Profit First -Transform Your Business from a Cash-Eating Monster to a Money-Making Machine
 by Michael Michalowicz

It’s about creating a budget for your business using ideal percentages for categories of expenditure so that you can pay yourself, pay your taxes and ensure you make a profit.  I can send you the first five chapters so that you get a gist of the book. 

If you'd like a template to work out your Personal Survival Income and the first five chapters of Profit First, just join our Free F.A.B (Finance & Business) Club.