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Budget as a Small Business! CB47



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good morning folks welcome to other chip

break let's talk about budgets now I

know this isn't the sexiest topic but

please especially if you are a budding

entrepreneur or younger person I cannot

emphasize how helpful basic accounting

and basic budgeting is going to be to

letting you do things that you want to

do make parts be happy enjoy and have a

prosperous and successful endeavor

whatever that is so let's talk about

budgets when you're a micro company kind

of a solopreneur or one-man shop less

overhead what the role of a budget is

then let's talk about a budget when you

get to say 100 200 grand a year in

revenue and it starts to get to the

point where your bank account balance

isn't a metric of where you stand right

now but please I can't emphasize this

enough we get so many emails from

younger folks high school college that

are getting started this is I think one

of the most important chip breaks

because it's not fun as some of this

stuff is having a basic understanding

will put you so far ahead of so many

folks out there let's dig in I'm gonna

start off by saying something so ironic

or hypocritical which is that budgets

are complete BS and I say that again

half joking and I say don't budget pay

yourself first come back to that why our

budgets BS well first of all they're

sort of a corporate construct of if you

guys have ever worked in a company or a

large organization you know budgets are

total rigged to game you can't predict

the future to that level of degree and

if you from an expense and capital

budget standpoint you know there's

things like use it or lose it where if

you don't spend the money you don't get

allocated at next year so people go make

stupid decisions to buy equipment or buy

things just to protect their budget or

they try to rig the numbers higher low

to make their their own performance

review look favorable blah blah blah

well here's what I'm here's what I will

say about budgets even if you're doing

your own budget is the one thing that's

true about your budget is it's going to

be wrong why as much as you may do a

good job creating the future because

that's kind of what an entrepreneur does

you know I love the same the future will

be kind to me for I intend to invent it

well you just don't know you just can't

predict so always remember why are you

budgeting what is the end goal is the

goal to figure out if you're successful

going to be successful is it to save up

enough money at the business level to

make a a perch

is it enough is it to make sure you can

pay yourself enough fur to hire a new

person on don't just budget for the sake

of saying I have a budget period also

again as a solopreneur when you're just

getting started you know you don't need

to do all this this is really the budget

that we this actually is my budget you

know took some of the numbers out but uh

you you don't need something and here's

why and this may be controversial which

is everybody talks about paying you know

pay your bills and pay you know whatever

other people which yes you have to pay

your bills but I say pay yourself first

if you are don't dedicating time to

something make sure you get paid first

on a hobby or something like that

because that's gonna be a more quicker

way for you to realize if it's not a

successful endeavor and too many people

will go down the path of doing something

and then realizing well I'm actually not

making any money after I pay all my

expenses and pay all my utilities or

material costs so say hey for every hour

I put in I want to pay myself 20 bucks

or whatever the number is or every

product I sell or every month I wanted

to cut myself a $2,000 check because

then if you run out of money you'll

either fail fast and fail cheap which is

a big thing of mine as well it's okay to

fail but fail quickly and fail as little

as money as you can or you'll figure out

how to hustle make it better change your

pricing or just again do a better job at

it in the long run that's doing yourself

a big favor but keep at high level pay

yourself first when you start to move on

to you know where I would say you know

we are somebody like John Grimm's know

if I can include him would be you know

you're in that sort of six-figure range

and you basically cannot look at your

bank account and see how much money is

in there and say that has any bearing on

how you're doing at the present moment

because there's times where we have well

over five figures in just outstanding

receivables which means people owe us

money or or five figures and outstanding

balance dues you know this I don't know

if I took this out or not but you know

right now

capex so we're buying a new plasma

machine I actually did place the order

for it more to come we bought a

deburring machine we have to we over our

shop sign it was more than that I just

took some numbers out so I've got I

actually do have probably a little over

five figures that I'll write checks for

in the next ten or twenty day so

whatever is in my

bank account is has no bearing on what I

owe but likewise we have some job shot

money coming in that's how that's why a

monthly budget like this is important so

let's walk through it real quick and we

will share this for the folks in

appreciate and we appreciate this

support NYC C&C on patreon as little as

a dollar a month really helps us justify

the time and we love doing these videos

and these chip breaks so I take break it

into three sections

I've got recurring revenue this is kind

of like set it and forget it

this is stuff that we have where it

pretty much comes in every month whether

it's job shop work or some of the Google

stuff that we do a YouTube stuff this

training classes etc put it in there

don't focus on it because it shouldn't

change great variable revenue we've got

one contract that does fluctuate a lot I

put its dormant right now it'll pick

back up it's a higher number than that

again just fudge numbers and then I kind

of have a swag to factor in there for

the miscellaneous job shop so this can

doesn't really dip below a thousand

sometimes it's a lot higher than that

and then I've got the products that we

make our Dewalt chops off fixture plates

we've got tormach fixture plates that

are actually coming back from anodized

today I'm really excited so that's a new

product for us so there wouldn't be

anything in here but we'll start

actually we did a pre sell a bunch so

you know we sell oops that wasn't

supposed to be in there that's coming

out soon Bridgeport power draw bark it's

you you I have a decent idea of how

these sell and then we tend to ramp

sales up as we approach the holiday

season so that's the revenue budget

expenses all a lot of these sound pretty

normal and most people underestimate

their expenses they're either not honest

with themselves or they don't realize it

and that's when the other things I want

to say if you're looking at this and

saying oh man this is easy well good go

do it

but what I will tell you is most

accountants most attorneys a lot of

businesspeople a lot of advisers a lot

of financial advisors are terrible at

this they don't have a basic good solid

grasp of this stuff I'm not picking on

them what I'm telling you is here's your

opportunity

get good at this you don't need to be an

accounting wizard or any sort of a

financial wizard or master know your

numbers you'd be able to look someone

the eye and say I know we're going to

pull on this much money

month and I know this is what we're

gonna have to spend so for us that's

rent payroll utilities and insurance I

don't want to see all that detail here I

try to keep this whole sheet as clean as

I can so that's seven hundred sixty

dollar number is a link down to here so

it equals C seventy six that is an excel

means I scroll down to here and that's

just a sum of heat electric water buying

stuff that's my swag if I look back at

my 2016 QuickBooks numbers I buy stuff

like you know just stuff that I don't

want to that I won't cost out two jobs

and that's kind of my cushion if you

will but you know whether it's buying

this morning I saw a deal on one two

three blocks and I bought them just

stuff like that that I probably do every

three or four days be honest with

yourself I travel for work so that's in

here small tools is kind of related to

buying stuff but just stuff we buy for

the shop

that's not capital items capital is

something for we define as are usually

more than a thousand dollars but from an

accounting standpoint when you have

something that's capitalized like a

machine you cannot expense it all in one

year don't let these words intimidate

you what that means is you've got to

expense it over a few years so if I buy

$20,000 tormach or Plasma I'm not able

to deduct that full amount against

revenue in one year the IRS says you've

got a deem some useful life of that tool

you this is where you would talk to your

accountant there happens to have been

for a number of years in the United

States into this day something called

section 179 that lets you to accelerated

depreciation which is a very tax

favorable thing basically you know you

can't talk to your accountant but if you

buy a machine you can write off the

whole amount in one year so if we earn a

hundred thousand dollars in a year and

we bought a hundred thousand dollars of

equipment normally you'd have to

depreciate that equipment over a number

of years which means you don't get the

tax shield effect from it this lets you

do that quicker just so you know though

if you ever sell that equipment there is

what's called recapture so it's not as

though you don't eventually owe the tax

if you were to say sell the machine

office supplies and then property taxes

so property tax is a great example of

why this what this budget is there's

what's called accrual accounting in cash

and again don't be intimidated by this

what does this mean well if John buys

something from Fred Fred would book that

revenue the day John sends in the order

but Fred doesn't get paid until John

writes the check that's the difference

between cash and accrual accounting

accrual accounting you book everything

when it happens cash accounting you book

it when you actually get the money some

of our vendors don't pay us for ninety

days we know that that really really

matters when it comes to a budget I'm

sure a lot of you have heard the saying

that some high percentage of small

businesses fail because of cash flow and

that's important it's important to note

is that that doesn't mean they fail

because of income or even revenue it's

because revenue doesn't mean jack squat

excuse my language there if if someone

doesn't pay you for it I could have

$100,000 receivable from a credit from

General Electric but if they're not

paying it for 90 days and I need money

today then that needs to be factored in

in my budget so property taxes are

something that we pay there do usually

in March so that's why they go there

versus just versus dividing that amount

equally over this whole period non-cash

expenses I put that in here because it's

something I want you guys to think about

the fact is stuff depreciates

depreciation is that both an accounting

metric we just talked about with the IRS

there's actual guidelines you can

literally find IRS book lists that's

this will put you to sleep quickly but

they talk about how you depreciate so

but I mean here I mean real-world

depreciation I mean the fact that we

just bought that brand new hose it will

not last 50 years will it last 20 years

it probably should but there may be some

maintenance along the time with that or

you need to think about the fact well I

know I need to replace it in ten years

so if I need to replace a hundred

thousand dollar machine in ten years

guess what I need to be saving ten

thousand dollars a year for that machine

which means this number needs to be

eight hundred dollars a month that's how

you budget period and that may sounds

scary but just start thinking about that

stuff likewise when were the building

that we're in hey I may need a $50,000

roof in three years the time to start

thinking about that is not in three

years it's today to be realistic about

it so what this gives you by the way the

non-cash expense

is right now are not factored into this

cash flow that's really important I put

them there more for you guys to think

about how you want to handle that but

basically this gives you cash flow

what's my revenue what's my expenses

then you have this section here should

be called cash balance so what's the

bout my bank account

today how much money am I making this

month distributions pay that's pay

yourself funding the equipment reserve

we'll come back to that

capex so that's my little chart down

here I know over the next few months

this is kind of what I've got of both

money going out and I've got some stuff

we're gonna sell so some money coming in

but the net sum of those three numbers

is still negative $6,000 so that comes

down right here and here's my ending

balance so if this budget were if these

numbers were all right

this would mean I've got a big problem

because my bank accounts gonna go

negative but it's also going to show me

is generally speaking that's what I'm

trying to get to at the end of the year

this is showing here you know forty-one

thousand dollars so again why are you

budgeting I tied a budget because I try

to think big picture to make sure what

I'm doing is in some respects a good use

of my time is it worth it to if I've

sell X number these products or do this

much job shop work looking forward is

that a good investment of my time in my

life and what I've able to do and do I

enjoy it

money is not everything but let me tell

you when you run out of it it's not very

much fun and then also people just don't

think about you know some people I think

are not good enough at doing a long term

job of forecasting what they need to do

and buy so I think getting on a basic

budget early on and again I cannot

emphasize this enough just understand

this you if you're a 16 year old or an

18 year old and you ever want to start

your own shop or start your own business

walk through this excel file you will do

you will be putting yourself so far

ahead and ultimately I think that's why

we've been successful is that I'm not a

great machinist enjoy machining stuff

and I enjoy making good part so I don't

a great machine but I've got that

understanding of the business side of

being able to sell a little bit being

able to budget a little bit really

important to being well-rounded the last

thing down here was a similar thing with

an equipment reserve so starts with zero

got no money in right now but each month

I put in 1250 so that's the negative

right here so that money comes out of my

bank account and kind of goes into a

separate account whether you actually

move it out of your bank account or not

is up to you it could be a little bit of

a pain to do that but this builds up you

know so at the end of the year I've got

$15,000 that's still mine that I could

use to buy a machine so I hope you guys

learned something again link in the

video description to download this excel

file please do play with it let me know

in the comments below if you have

questions otherwise take care folks see

you soon

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