Every successful business and organisation need a business budget, however, there never seems to be enough time for business owners and key managers to plan their business budgets. That said, your business budget is one of the most important business financial statements. If it is effectively planned and managed well, it will allow you to monitor the financial impact of your business’s or organisation’s decisions and operational plans.
Drafting a business budget is very easy if you have already prepared one the previous year. But if you are reading this article, the odds are that you have never prepared a business budget for your business or organisation before. In that case, read on and/or seek assistance from your accountant.
What is a Business Budget
A business budget is a summary of a business’s or organisation’s expected income and expenses. It is usually prepared annually although the period can be shorter, depending on what your intentions are for using the budget.
How are Business Budgets used?
Business budgets are often used by business owners and key managers to help them in determining:
- The funds needed for labour costs and/or material purchases;
- The total start-up costs for a new business;
- The operational costs;
- The revenue necessary to support their business or organisation; and
- A realistic estimate of their expected profits.
Why your business or organisation needs a Business Budget?
You will need a business budget when you are having to:
- Determine if you have enough money available to keep your business or organisation up and running, growing and competing?
- Determining if you need to bring in any money to help you meet your business’s or organisation’s goals?
- Ask your bank or a non-bank lender for a loan because you don’t have enough money?
Managing and Monitoring your Business Budget
Regular managing and monitoring of your business budget against actual results will enable you to:
- Estimate (and then match), your business’s or organisation’s outgoing expenses to its incoming revenues;
- Monitor your business’s or organisation’s outcomes against your prepared budget;
- See if your business or organisation is on track to achieving its goals and remaining profitable.
Preparing your Business Budget
Your business budget should be tabulated at least yearly. It should also be divided up into 12 months, with blank columns next to your estimates (i.e. you will need to fill in these blank columns with your actual results) as the year progresses.
When preparing your business budget, your starting point should be to first understand your business’s or organisation’s goals. Consideration should also be given to involving key staff in this process.
Your steps could include:
1. Calculate Sales and Profit Targets
- If you have been in business for a while, take your company’s most recent financial statements and use these statements as the basis for developing your sales and profit targets.
- If you are a start-up business, begin by estimating what type of realistic profit you would like to see in the coming year).
2. Calculate Operating Expenses.
- Your financial statements should include an itemised list of your fixed and variable expenses you incurred during the year such as salaries’ and wages, rent, postage, research, travel, utilities, taxes, etc.
- If you are just starting-up a new business, then you are going to have to brainstorm to factor in all the costs you will incur.
3. Calculate your Gross Profit Margin
- Again, this is much easier if you are in an existing business. In that case, you will need to calculate the cost of your goods sold and subtract that figure from your overall sales revenue.
Reminder: Always remember that “business budgeting works on common sense”. It is not an exact science.
Seek Expert and Professional Advice
Employing the services of our expert business and management consultant will benefit you. In so much as our business and management consultant is also a professionally qualified public accountant.
It is important that you seek advice from someone who is suitably qualified to give you professional advice. It is, for this reason, that you should seek advice from our business and management consultant who has the required knowledge and understanding of explaining to you, how an effectively planned and managed business budget, will allow you to monitor the financial impact of your business’s or organisation’s decisions and operational plans.
Contact Us Today
If you are still unsure with what information should be included in your business budget or if you have any questions. Call us today on 0424 190 908 today or simply click here to send your question and we will contact you without delay.