[This article was written by Brooke Chaplan.]
The essential costs of business tend to be the same across multiple industries. These include your fixed costs, overhead, and variable expenses. When you’re trying to get a loan, it’s especially important to understand how to calculate and group the necessary costs. Here are some of the categories which you need to budget for when you’re applying for a business loan.
You may be applying for a business loan because you’re new to the business world or because you want to expand upon your company. To get a loan that covers your needs, you’ll need to look into the costs of the equipment that you’ll be using regularly. Equipment can mean the items that you need to do business or even refer to your building and the associated land. These costs tend to be more fixed in nature because they’re predictable. It can also include items like your overhead costs. This would include your energy and resource usage. Budgeting for these items gives banks the assurance that they need in order to know that you’re taking your business model seriously.
The costs of supplies can be more variable in nature because they are dependent on the amount of sales that you generate, but are still considered overhead. Look into using supply chain solutions so that you can work to reduce the amount of money that you need to pour into this area. Lowering the amount you need to budget means that you can spend your profits in other areas of growth for your business. It’s also nice to know that you have a reliable vendor for all of your supply needs. This will reduce those last minute purchases that could start to impact your budget. The reordering process can be more streamlined when you work with the same company.
Your payroll is something that needs to be accounted for in that it plays a huge part in the amount of money that you require to run your business. Labor costs should run about half of your budget. This will depend on your specific business model and the number of employees that you need to operate. This variable cost will fluctuate depending on how much business that you’re doing. You’ll also need to factor in the costs of benefits to this figure. Keeping your employees is important because having a high turnover rate can start to eat into your budget very quickly.
Getting your numbers in order before you decide to apply for a business loan can save you from a rejection letter. Use these categories as a starting point for how to put together your budgetary requirements. The more you have prepared, the more likely you are to successfully get that loan.
Brooke Chaplan is a freelance writer and blogger. She lives and works out of her home in Los Lunas, New Mexico. She loves the outdoors and spends most of her time hiking, biking, and gardening. For more information, contact Brooke via Facebook at facebook.com/brooke.chaplan or Twitter @BrookeChaplan