Government do budget, households do it, and every business is expected to do it. Budgeting is a discipline that shows what is possible, what is not and one which later allows progress towards what is feasible to be measured and managed.
The principles involved are easy enough- estimate what you are going to sell, calculate what you need to buy or make to support those sales, and think about the labour and machinery needed to run the business. Put money values on it all, review the results and make the plan accordingly. The result is your expected profit or loss.
Although there is no specific formular for preparing business budget, but the following are simple tested ways to create business budget:
Step 1: Tally Your Income Sources
The first element of a good business budget is figuring out how much money you bring in on a monthly basis.
Start with your sales figures first, and then go further by adding other income sources you use to run your business.
Step 2: Determine Fixed Costs
Fixed costs are expenses that are charged the same price each month. As you can imagine, incorporating these is by far the easiest part of creating your business budget.
Review your past bank statements or accounting system reports. You’ll easily be able to spot your fixed bills and the total amount they cost you each month.
Step 3: Include Variable Expenses
Items that don’t have a fixed price tag each month are called variable costs.
Many of these purchases can actually be scaled up or down depending on the state of your business, using your monthly profit. Your profit each month will be determined by the earnings you’re left with after paying all your costs.
So, if your business does better than you forecasted, you can use the extra funds to increase variable spending enabling you to grow faster.
Step 4: Predict One-Time Spends
A great perk of creating a budget is now you will be able to factor in one-time purchases better than ever before. While some of these items may come up unexpectedly, like the purchase of a laptop to replace the one that crashed, others can be budgeted for months in advance, like that business retreat you’ve been eyeing, to protect your business from financial burden.
Step 5: Pull It All Together
The first four steps of this post detail the elements of a good business budget, so the last step is simply pulling it all together. Take action by using this handy checklist with specific examples so you can create your budget without any hassle:
- Hourly Earnings
- Product Sales
- Investment Income
- Government and bank fees
- Cell phone
- Website hosting
- Accounting Services
- Legal Services
- Raw Materials
- Contractor Wages
- Other Marketing Costs
- Travel & events
- Printing Services
- Office Supplies
Budget may be wrong sometimes. But without them businesses would be floundering, travelling in hope rather than expectation, and in an uncertain direction. With budget businesses are able to progress with confidence of having the route planned in advance.