When running a business, it’s important to have a budget in order to operate efficiently. It is known in business that before you make money, it is important you learn how to spend it. Drafting a budget is an essential way to turn your business into a success. This helps you track cash on hand, business expenses and revenue used to keep your business growing. When you put these numbers to paper, your business has much higher chances of success while also anticipating needs, cash flow, and spending for the future.
Why Your Business Needs a Budget
When you draft a budget up it allows you to know how much money you currently have, how much you will need to spend, and how much money you have to bring in in order to meet your business goals. Budgets allow for minimizing risks when it comes to your business. It can be used to suggest the following:
- Signing a lease
- Investing in new machinery or equipment
- Costs of operations
- Realistic estimate of profits expected
- Revenue needed to support the business
This information can be used towards plans or expectations within your business you may have going forward.
The Components of a Budget
- Cash flow
These figures allow you to figure out if you have money left over to be used for improvements or capital expenses. A business budget should be drafted yearly at the very least and divided up into 12 months. It is advisable to consult with an accountant when preparing a budget for the sake of accuracy and convenience.
How to Draft a Business Budget
Drafting a budget becomes easier if you write them consistently year after year. The projections from previous years coupled with the income and expense figures that have been squared out. This helps you form the basis of your estimates for the upcoming year.
- Target your sales and profits
- Develop a target for your sales revenues
- Estimate your profit for the coming year
- Take into consideration factors that may affect sales
- Calculate operating expenses
The best place to start is your previous financial statements and these statements should be itemized of fixed and variable expenses that were incurred throughout the year. This should include salaries, rent, wages, utilities, taxes and more. Remember it’s best to use realistic figures so that the budget can be helpful in guiding your business.