Creating A Budget

A powerful tool for your business to prosper financially and to help you strategically, to meet your goals is to create and maintain a budget.

Using a budget can do many other things for your business, such as help you to prevent financial risks, set aside money for unexpected situations, assist you in setting aside money for a sustainable operation, and it can also help to document that your business is viable to current and potential investors. 

Here are some easy steps to creating your business’s budget:

STEP ONE

Documentation – Gather all of your key financial paperwork, such as statements, balance sheets, and any other reporting that you have on file for your business, such as tax forms. If your business is new and you do not have all of these documents yet, use what you have. What you’re going to do with this information collectively, is to see your financial position and use it to be strategic in your future endeavors.

STEP TWO

Assets & Liabilities – If you don’t have accounting software that tracks this information for you or if you’re a new business, you will need to do this step manually. Otherwise, you can use reporting such as your balance sheet, to help you to get the full picture of your business’s financial health. This information should include your inventory, loans, and all other assets, income, debts, and liabilities.

Additionally, note where your expenses and income are coming from, as this information are valuable not only in creating a budget, but to maintain it and to forecast and document the vitality of your finances.

STEP THREE

Categorize – Categorize your expenses as fixed or variable. Fixed expenses are debts and expenses that are a consistent amount month to month, such as your internet or mortgage payments. Variable expenses are those that change from month to month or bill cycle to bill cycle. These sort of expenses could be your utilities or materials costs.

Once you have your categorization completed, you can see price increases, decreases, which will help you to be able to analyze and recognize trends in your spending, which may lead to you making adjustments in how you’re allocating your funds.

You may also see that you would benefit from including a contingency fund to your financial plan.

STEP FOUR

Cash Flow –  Look at your cash flow and determine the health of your working capital.  Look at how quickly your customers pay and how expediently you sell your inventory. Analyze your debts and consider interest rates and other expenses connected to loans and expenses so that you can decide whether or not you can lower the extra costs or pay off the debt completely.

Profitability – Calculate your profit margins by subtracting your total expenses from your estimated revenue.  This information will not only help you to see your gross profit, but it can give you a guide for setting necessary spending limits and give an indication about how you are attaining your goals..

STEP FIVE

Maintenance – Routinely compare your actual income and expenses against your budget.  To stay on task, make adjustments as needed, monthly, quarterly, or annually to ensure your budget remains sustainable, realistic and aligned with your business’s performance.