Business Budget: To be successful in business, it’s important to stay on top of your finances. One of the challenges that new business owners face is creating a budget. Where should you start? Read this guide to get an intro on how to prepare a simple budget for your small business so that you know exactly what kind of numbers you’re dealing with! (Also Read: How to Write a Great Business Plan: The Ultimate Guide)
How to Prepare a Business Budget
What is a budget?
What are the purposes of business budgets?
To compare actual results to estimates and, if necessary, take corrective action.
To create financial accountability within an organization.
To provide information for decision-making
To support the development and implementation of strategic plans
What is a profit and loss statement?
To prepare a P&L for your business, you’ll need to gather information about your revenue and expenses from your accounting records. Once you have this information, you can use it to create a P&L template or spreadsheet. Once you’ve created your P&L, you can use it to track your progress over time and make changes to improve your bottom line.
What are the basic financial terms when preparing a budget?
Assets: These are the things your business owns that have value. They can be physical (like inventory or equipment) or intangible (like patents or copyrights).
Liabilities: These are the debts and other obligations your business owes. They can be short-term, like credit card balances, or long-term, like a mortgage or loan.
Equity: This is the difference between your assets and liabilities. It’s what you own after you subtract what you owe.
Revenue: This is the total amount of money your business brings in through sales and other sources of income.
Expenses: This is the total amount of money your business spends on operating costs like rent, supplies, salaries, and so on.
What are the common steps in creating a budget?
1. Know your business goals.
Before you can start creating your budget, you need to know what you want to achieve with it. What are your business goals? Are you trying to increase sales, reduce costs, or both? Once you know your goal, you can begin creating your budget.
2. Track Your Income and Expenses
To create an accurate budget, you need to have a clear idea of your current income and expenses. Track everything over the course of a month so you can get an accurate picture of where your money is going. Use accounting software or create a spreadsheet to help with this process.
3. Create your budget template.
Now it’s time to start creating your budget template. There are many different ways to do this, so find a method that works best for you and your business. Once you have created your template, fill in the numbers from your income and expense tracking. Make sure to leave room for fluctuation; no business is exactly the same from month to month.
4. Review and adjust as necessary.
How do you write a budget recommendation?
First, you should always start by evaluating your current budget. This will give you a good idea of where your money is going and where you may be able to save. You should also look at your revenue and expenses for the past year to get an idea of trends. This information will be helpful in creating your recommendations.
Next, you will want to research what other businesses in your industry are doing. This will give you an idea of what is working well for them and what may not be working so well. You can also get ideas from businesses outside of your industry that has successfully implemented budgets.
Finally, you will want to tailor your recommendations to the specific needs of your business. Every business is different, so it is important to make sure that your recommendations fit with your company’s goals and objectives. With these tips in mind, you should be able to create a successful recommendation for your business budget.
1. The Envelope System: This is where you put your money for each category into an envelope and only spend what’s in the envelope. The problem with this system is that it’s inflexible and doesn’t allow for unexpected expenses.
2. The zero-based budget: This is where you start with a clean slate each month and allocate every dollar to a specific category. The problem with this system is that it’s too restrictive and can be very difficult to stick to.
3. The 50/30/20 Budget: This is where you divide your income into three categories: 50% for necessities, 30% for wants, and 20% for savings or debt repayments. The problem with this system is that it doesn’t account for irregular income or unexpected expenses.
4. The Dave Ramsey Plan: This is where you put all of your extra money towards debt repayments until you’re debt-free, then start saving for retirement. The problem with this system is that it’s very aggressive and can be difficult to stick to if you have a lot of debt.
5. The Pay Yourself First Plan: This is the style where you save a portion of your income first, then use the rest of your money for expenses and another spending. This system promotes frugal living.
Creating a business budget can seem daunting, but it doesn’t have to be. By following the steps laid out in this beginner’s guide, you can create a budget that will help keep your business on track and make sure you’re making sound financial decisions. (Also Read: How to Start a Daycare: The Ultimate Guide)