How To Plan Your Business Budget?
A budget is the most important tool your business can have. However, your business budget can only be helpful, if it is effectively planned and managed. For that reason, your business budget can:
- Help your business in meeting its business goals;
- Help your business to become more profitable; and
- Assist your business through tough financial times.
Remember, drafting a business budget is very easy if you have already prepared one the previous year. However, if you have never prepared a business budget for your business before, then this blog can be of benefit to you.
What is a Business Budget?
A business budget is a financial plan that helps carry out your business’s objectives and strategies. Creating a budget for your business will provide you with some very useful information such as:
- Your budget will provide you with a guideline of your business’s expected income and expenses; and
- You will also be able to “compare” your business’s “anticipated financial goals” with the “actual results”.
The time frame of your business budget will depend on the industry your business is in. With this in mind, you will need to decide if you will be budgeting monthly, quarterly, or even yearly.
Remember, your business budget should be formulated at least yearly.
Managing and Monitoring Your Business Budget
Regular managing and monitoring your business budget against actual results will enable you to:
- Estimate (and then match), your business’s outgoing expenses to its incoming revenues;
- Monitor your business’s outcomes against your prepared budget; and
- Determine if your business is on track to achieving its business goals and remaining profitable.
Planning Your Business Budget
When planning your business budget, your starting point should be to first understand your business’s goals. Consideration should also be given to involving key staff in this process.
Here are some “tips” that will help you when you are planning your business budget:
Tip#1. Calculating Sales and Profit Targets
- If you have been in business for a while, take your firm’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, you should begin by estimating what type of realistic profit you would like to see in the coming year).
Tip #2. Calculating Operating Expenses
- Your financial statements should include an itemised list of the fixed and variable expenses your business 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, you are going to have to brainstorm to factor in all the costs your business will incur.
Tip #3. Calculating 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.
Remember: It is important to always remember:
- Business budgeting works on common sense (i.e. It is not an exact science).
- The goal of your business budget is to make sure that enough money is available to keep your business up and running.
Why is Business Budgeting Important?
Business budgets are vital to the success of any business, whether large or small. Put simply, your business budget can help you in determining:
- The funds needed by your business for labor costs and/or material purchases;
- The total start-up costs for a new business;
- The operational costs of running your business;
- The revenue necessary to support your business;
- A realistic estimate of your business’s expected profits.
- Whether you have enough money available to keep your business up and running, growing and competing;
- Whether you need to bring in any money to help you meet your business goals.
- Whether you need to ask your bank or a non-bank lender for a loan because you do not have enough money to run your business?
Seek Expert and Professional Advice
When seeking advice. It is important to seek this advice from someone who is suitably qualified to give you professional advice. It is, for this reason, that you should seek advice from our consultants who have 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 decisions and operational plans.
Contact Us Today
If you are still unsure of what information should be included in your business budget or if you have any questions. If you require more information or assistance, please call our consultants today on 1300 4 SINGH, or simply click here to send a question.
DISCLAIMER: This blog post is of a general nature only and does not constitute professional advice. I strongly recommend that you seek your own professional legal and accounting advice in relation to your particular circumstances.