For many, preparing a budget is a challenge. A good business budget will save money, help you stay out of debt, and achieve your business goals.
A well-planned budget can also help you face emergencies and market trends that cannot be foreseen.
Here are three simple steps can guide you in preparing an effective and stress-free budget for your business:
1. Set your Business Goals
Set your budget based on your business goal. Unless you have a clear business growth plan, you would never be able to prepare a successful budget.
Review your business goals and plan how much you have to set aside for each month. You can take better control of your financial future if you prioritize budgets based on your short-term, medium-term, and long-term financial goals.
If it’s your first year in business, your budget should focus primarily on monthly expenses as your revenues will be unpredictable. Forecasting your expenses and budgeting ahead will help you survive and succeed.
A comprehensive budget should allow you to handle seasonal or unexpected expenditures with ease. Ensure that your expenses are not more than your income at the year-end.
2. Monthly Expenses Vs Monthly Income Sources
Developing any monthly budget means determining how much money you are making and how much you are going to spend. To maximize the effectiveness of your budget, identify and create separate columns for fixed expenses and variable expenses.
- Sources of monthly income
- The better you estimate the amount that comes in on a monthly basis, easier it is to allocate cash for these expenditures. Your monthly income includes product sales, services offered and everything else that brings money into your business.
- Fixed expenses
- Fixed expenses are the easiest to identify. You spend the same amount on every month. These include payroll, bank fees, rent/mortgage, maintenance, utilities, etc. These outgoing expenses do not change even if the production level or sales volume fluctuates.
- Non-recurrent/variable expenses
- Variable expenses are much difficult to predict and they are related directly to the sales volume, competition, transactions, projects and market trends.
- By understanding how much your business is making, you can prevent yourself from overspending. Ensure that you allocate funds to business needs that has higher priority when you are low on profit margins.
- Keep in mind that variable costs may differ each month; hence it is required you constantly review your budget and adjust as needed.
3. Plan for ‘Off Season’ Sales Cycle
If you are running a seasonal business, you have to plan your budget holistically to survive the ups and downs for the entire year. It is necessary you stay afloat even during off-season phase. For the off season, plan your spending well ahead and determine the basic necessities your business will require to run. Ensure you cut down on all non-essential expenditures during this period.
For instance, from inventory to staffing, it’s important to avoid unnecessary expenses as much as possible. Just identify your requirements and adjust your budget so that you can streamline your spending and run your business smoothly until the next peak season.
Creating a business budget may seem like a hassle – and it is time consuming in tedious. However, a strong budget helps you make conscious financial decisions that help you stay competitive, on track, reach your goals, and most importantly: grow.