How To Create A Business Budget Plan

How To Create A Business Budget Plan-57
The budget should operate according to basic mathematical equations -- either "sales = total cost profit" or "sales - total cost = profit."How to Draft a Business Budget Drafting a budget is easiest if you wrote one the previous year.Those projections, coupled with the actual income and expense figures you realized, would form the basis of your estimates for the coming year. Start out by developing a target for your sales revenues, advises SCORE, a non-profit group with 370 chapters that is dedicated to helping entrepreneurs and small businesses form, grow and succeed.

The budget should operate according to basic mathematical equations -- either "sales = total cost profit" or "sales - total cost = profit."How to Draft a Business Budget Drafting a budget is easiest if you wrote one the previous year.Those projections, coupled with the actual income and expense figures you realized, would form the basis of your estimates for the coming year. Start out by developing a target for your sales revenues, advises SCORE, a non-profit group with 370 chapters that is dedicated to helping entrepreneurs and small businesses form, grow and succeed.

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If you're just starting out, hopefully you have done your research by asking other business people in the same field as you, using knowledge of the field you had at a previous job, and/or doing market research.

Total costs and expenses - Now that you have your sales estimates done, you can come up with figures for how much it will cost your business to earn those revenues.

It also may let you spot problems before they mushroom, so that you can switch gears."It's like a roadmap for your company," says Victor Butcher, of Butcher Financial Services in Memphis, Tenn., a former president of the Tennessee Society of Certified Public Accountants' Memphis Chapter who advises small businesses.

"You need the roadmap to understand where you're going with your business."Conversely, if you don't have the discipline to sit down and assemble a business budget, you may not have insight into how your business is performing from year to year, whether there are cuts you can make to improve performance and whether you have the needed funds to purchase new equipment -- be it computers, trucks, machinery, or a new factory.

A 12-month budget can be updated with actual expenditures and revenues each month so that you know you're on target.

How To Create A Business Budget Plan

If you're missing the targets set out in your budget, you can use the budget to troubleshoot by figuring out how you can reduce expenses like labor or new computers, increase sales by more aggressive marketing, or lowering your profit expectations.Once you have profit estimates, you can also start to plan for whether you can purchase new equipment, move to a bigger location, add staff, or give your employees bonuses or raises.You can also troubleshoot your projected costs and see where you can cut if your profit projections aren't up to snuff.These can be tricky because sometimes they will vary because of inflation, price increases, and other factors.Costs can be divided into categories: fixed, variable, and semi-variable.• Fixed costs are those expenses that remain the same, whether or not your sales rise or fall.It's a basic tenet of business - before you can make money you have to figure out how to spend it.Drafting a budget is a key way to help you turn your dreams for business success into reality."It would be stupid not to share this with employees.Everybody should know what the goal of the company is. "Don't expect your staff to meet your goals if they don't know what they are."Budgets can also help you minimize risk to your business.Components of a Budget A budget should include your revenues, your costs, and -- most importantly – your profits or cash flow so that you can figure out whether you have any money left over for capital improvements or capital expenses. Most yearly budgets are also divided up into 12 months, with blank columns next to your estimates to fill in with your actual results as the year progresses.You may want to consult an accountant in preparing a budget, but it also may be something you can do yourself with small business financial software and/or some of the free budget worksheets and templates available online (see Recommended Resources below.)Here is how the SBA defines the basic budgeting components: Sales and other revenues - These figures are a budget's "cornerstone." Try to make these estimates as accurate as possible, but err on the side of being conservative if you have to.

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