If you are 18 years and above, you are likely no stranger to the concept of budgeting, especially as regards personal finances. Budgeting involves the plans made to disburse revenue efficiently. When it comes to your business, you don’t need words from a soothsayer to know how important budgeting is if you want to have a successful business.
Starting a business requires capital which could cost a lot, but the expenses don’t stop because your business is operative. If you want to keep your business up and running, budgeting is vital. Managing what goes out from incoming revenue and deciding where it goes can be onerous, but it is rewarding.
Why is business budgeting important?
The primary reason is efficiency. The benefits of budgeting are more long term than immediate. When you budget well, you can make projections for the future and mitigate unfortunate occurrences; you have more control.
How do you create a budget?
Like many things that have to do with finances, you have to have a clear goal. Your business budget requires you to outline what your finances look like now and your long term goals.
Follow these simple steps to have your business budgeting on lock.
- Vet your revenue: You should look through your finances and determine how much your business brings in and where all the money comes from. It is a painstaking effort because you have to investigate every single source of revenue. The entire process involves looking back on expenses made and then making adjustments.
- Make a total of your fixed expenses: Your fixed expenses are those goods or services you pay for regularly that cost the same amount. Examples include employee salaries, insurance and taxes.
- Incorporate your variable expenses: Variable expenses are expenses that could change depending on their use or other factors such as higher profits or loss. Examples include production supplies, the owner’s salary, and travel expenses. If you do this monthly, you can predict how these expenses oscillate with business performance. Doing this contributes to how well you can project into the future and plan budgets accordingly; whether or not to make cuts.
- Determine expenses you make just once: These include the things necessary for the business, but you do not require continuous payment. It’s important to factor them into the budget as well.
- Make a total of your expenses and subtract from your total revenue. This helps you determine whether or not you made profits.
Make the budget
- After you have found out whether or not you have made profits, you make projections. This means you create a budget based on the review you have made in the first five steps. Also, a contingency plan for emergency expenses when budgeting is needed.
Note: Managing budget does not have to be your primary focus because you have to pay attention to your business. You can hire accountants to manage the budget and ensure you are sticking to it. There is also budgeting software that can help you track your spending.