Budgeting for Payroll

November 8, 2023

Video Transcript:

Budgeting for payroll is always a challenge. So I want to give you some tips on how you can structure to budget for payroll. First off, remember that payroll should be 20% of your revenue, no more, no less. We want to make sure that we target to get to that specific area because that is where we’re going to maximize your profitability. If you have less, you may have less staff able to handle customers. So that’s not necessarily a good thing. And if you have more, obviously that takes away your profit. So what’d you want to do to try to set up a budget for your payroll is first off, focus on projecting out what you think your revenue will be by the week for the upcoming weeks. Look out about two or three months at least, and look for this to manage your payroll. So we want to take and look at the forecasted sales for each of the next weeks.

When you get that forecasted sales number, multiply it by 20% that will tell you how much you’re budgeted in gross wages for your payroll. Now this does not include owner pay. So let’s do a quick example. If you’re budgeting that your revenue for next week is going to be a $1,000 that means that you should have $200 allocated to spend on gross wages. So if your staff all makes, we’ll make it real simple. They all make $10 an hour, $200 divided by the $10 an hour means that you can pay 20 hours to your labor. So that would mean that your schedule should show people working for a total of just 20 hours. Now I know those are small numbers, but I wanted to use nice easy math to make this a good example for you. So let’s run through that calculation one more time. Take your projected revenue and multiply it by 20% that is the gross wages number.

Now when you look at who’s scheduled, so if you have one employee who makes $10 an hour, another makes $12 an hour, you’ll want to account for their gross wages. If one scheduled for 40 hours and one scheduled for 30 hours, multiply and figure out how much their gross wages are. That’s how you want to balance your schedule so that you’re anticipating what payroll should be based on what you think your revenue’s going to be. So have some fun with that. Give it a shot. Let me know how it goes. Let me know if you’ve run into any questions or any challenges. We’re here to help.

Donna Bordeaux, CPA with PYOPAccounting.com.

Creativity and CPAs don’t generally go together. Most people think of CPAs as nerdy accountants who can’t talk with people. Well, it’s time to break that stereotype. Lively, friendly and knowledgeable can be a part of your relationship with your CPA as demonstrated by Donna Bordeaux and PYOP Accounting.com. Donna and her husband, Chad, who is also a CPA, have over 50 years of combined experience as entrepreneurial CPAs. They’ve owned businesses and helped business owners exceed their wildest dreams. They have been able to help PYOP studios earn 4 times more profit than the average PYOP and are passionate about helping industries that help families build great memories.