Every small business requires a business budget. While your business plan may be your roadmap for the future success or failure of the company, without a proper budget you won’t know which direction you’re heading. Provided your budget is based on up to date and accurate figures, it will help to steer your business along the right path. Let’s take a look at what should go into a good business budget and why it’s so important to have one.
Listed below are a series of tips that will help you budget your business finance in a more considered structure.
What to Include in a Business Budget
In basic terms, business budgets are estimates of your company’s income and expenditure over a prescribed length of time. Annual budgets are the most common, but it’s possible to create a budget for a few months, weeks or even days – the type of business you have will determine the type of budget you require.
Your budget should include projections of all your revenue as well as your outgoing expenses. Your main revenue source is likely to be your projected monthly sales – ideally an estimate based on last year’s figures, provided you’re not a brand new start-up. Against this you need to draw up a list of expenses, including fixed costs (such as office rent, utility bills and insurance) and variable costs that will change depending on your volume of sales (such as the cost of raw materials, salaries and advertising and marketing costs).
Once you’ve drawn up your projected income and expenditure, you can subtract one from the other to calculate your profit projection. If the figures look good and are close to industry standards, you can then work out whether to spend more on raising salaries or buying new equipment, for example.
The Benefits of a Business Budget
The main benefit of having a business budget is in allowing your company to plan for the future. With a detailed and accurate budget in place, you’ll know how much you can afford to spend on marketing, whether you can afford to take on new staff or pay your existing staff more, and what expenses you can expect to be paying out over the coming months.
By comparing actual figures with your budget projections, you’ll be better placed to judge your company’s performance in terms of sales, spending and cashflow.
Creating a Business Budget
While you can create a budget using basic spreadsheets, dedicated accounting software will provide the most effective means for creating your budget and tracking changes in future. The quickest way to put a new budget together is by referring to any previous budget you’ve made, even if you plan to make improvements this time around.
Remember to keep things simple but ensure figures are based on your real business performance and industry standards. You should aim to strike a balance between level of detail and level of usefulness. Identify distinct categories such as income and expenditure, sales, staff and marketing so that you can break down the figures more easily.
Once you’ve created one good business budget, you can use it as a template for future years.