Five Steps To Making Your Business Budget
For businesses, money management is crucial. If you don’t plan where your money goes every month, you’re passing up opportunities to save and put it where it has the most impact.
The only way to see if you are making the right monetary decisions and spending where you should is to create a budget. A budget is a thorough plan that outlines how you intend to spend your money on an annual or monthly basis. The process of creating a budget can be intimidating, especially if you’re just getting started. But the thing is, budgeting can make or break your business.
To help you in that regard, we’ve compiled a list of steps to ease the process of making your business budget. Here they are:
- Take a good look at your revenue
The first step in planning a budget is to examine your current business and identify all of your revenue (aka earnings) sources. Add up all your income sources to find out how much your company makes monthly. When calculating your gain, account for revenue rather than profit.
Side-Bar: The best thing you can do for your business is hire accounting services. With an accountant, you can manage the revenue stream of your company. Other options include furthering your education.
If you’re a business executive or any other individual looking to get a grip on the finance world, a CPA qualification can prove helpful. Just be sure to pay some extra heed to the exam preparation process. If you are confused about which platform to use between Wiley vs Becker, do your research and invest in the option that can help you ace your CPA exam.
- Make a loss and profit statement.
Once you’ve gathered all the above data, it’s time to compile it into your loss and profit statement, or P&L.
We understand that even discussing a profit and loss statement can lead to anxiety. But keep in mind that you’ve already completed all of the work. It’s also addition and subtraction: Total your monthly earnings and expenses. Then, deduct the costs from the payments and hope for a positive result. If you do, you’ve earned profits. If not, that’s a loss, and that’s acceptable. Small businesses do not make money each month, let alone each year. That is especially true when you’re just starting. So take it easy and start again.
- Cash flow projections
Cash flow has two components: vendor payments and customer payments. You must balance these two components to keep cash flowing in your organization. To facilitate prompt customer payments, it’s critical to have flexible payment terms and the willingness to accept payments via standard payment streams. Unfortunately, you will have to talk to customers who may not follow the times stated.
Missed payments may have an impact on your financial projections. You can inspire cost by providing customers with a grace period and establishing strict business policies for late payments. When you understand your inbound cash flow, you can set a budget for travel expenses and employee salaries. You can also set aside some funds to cover your fixed vendor expenses.
- Consider seasonal and industry trends
It is unreasonable to expect you to meet all of your business objectives and estimates every month. In an annual cycle, there will be months when your business will be thriving and months when sales will be slow. Due to seasonal discrepancies and industry trends, you will need to spend money wisely so the company does not shut down during slower times. Gather insights into your business’s best performance to manage uncertainties while creating a budget. The goal should be to generate enough money during peak months to keep the business running during the off-season.
Assume you are the owner of a winter apparel company, for example. Because your merchandise is only in demand during that season, most of your revenue is generated. However, you can use the income for the rest of the year to keep the business running and market to targeted groups, such as travelers or hikers. It will assist you in determining how effective your products are during off-seasons, how much income to expect, and how much to save during busy times.
- Bring everything together
It’s time to develop your budget now that you’ve gathered all the information from the steps above. After deducting your fixed or variable expenses from your revenue, you will know how much money you have to work with. Prepare to deal with any unforeseen one-time payments that may arise. You can then figure out how to put the money to work in the short and long haul.
So these are some of the steps to help you make your business budget. Creating a solid budget allows you to allocate and estimate money for various business activities. Just keep reviewing your budget and making the necessary changes so that nothing goes haywire and you can continue to grow your company.