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Once you have determined your variable and fixed expenses, it’s time to look at your expected sales. You will calculate this by multiplying expected number of sales by selling price of product. If you are in a service industry or have a service aspect to your business, you need to determine expected service income. In determining your income from services you must deduct expenses involved with those services, from total revenues they brought in. The resulting number is your income contribution from services.

Sales

50 homes twice a month = 100, multiplied by $75 per service equal $7,500

Termite Service 5 times a month @ $8,000 = $40,000

=$47,500

Labor $25 per service, multiplied by 100 = $2,500

Materials $5 * 100 = $500

Expenses $10 * 100 = $10,000

=$13,000

Income from Service Contributions = $34,500

Now it’s time to compare revenue and costs. Total up fixed and variable expenses, and then add to that your desired gross profit. This number will serve as benchmark for reaching your desired level of success. Once you have determined fixed/variable expenses plus your projected gross profit, you need to calculate revenues. Take your service income contributions that you figured earlier, and then add revenues from your various product sales. This will result in your total revenue, based on your present outlook. Subtract your (Fixed/Variable + Gross Profit Expectations) from your (Income from Service Contributions + Product Sales)

Fixed + Variable = $200,000 + $45,000 salary for Sue (Gross Profit) = ($245,000)

1000 Bottles per year times $25 = $25,000

Income from Service Contributions $34,500 times 12 = $414,000+ $25,000 = ($439,000)

$439,000 - $245,000 = $194,000 above expectations ($194,000 Gross Profit)

Sometimes resources are enough to cover your desired level of profit, sometimes they are not. By developing a budget, you can make realistic projections and modifications to crucial areas in order to obtain higher profits.

In conclusion, preparing a budget allows you to paint a financial picture of your business plan by identifying and researching your fixed & variable expenses you will make it much easier to make better business decisions while evaluating your business profits. Remember, your budget should always provide you with an adequate return on investment (ROI). If ROI is not very high, or as high as you would like, you may need to reconsider your approach to business.

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