Budgeting being a very critical aspect of a business just like every individual or household needs to budget, a business depends highly on its budget to measure and analyze their success. We design a professional budget for your business, taking into consideration all areas of operations and everything that will cost you from every penny and that which will bring you revenue.
Budgeting and Budgeting Processes
Time and money are scarce resources to all individuals and organizations; the efficient and effective use of these resources requires planning. Planning alone, however, is insufficient. Control is also necessary to ensure that plans actually are carried out. A budget is a tool that managers use to plan and control the use of scarce resources. A budget is a plan showing the company’s objectives and how management intends to acquire and use resources to attain those objectives.
A budget is an essential part of your business plan when starting a new business. Once your business is established, budgeting becomes a regular task that normally occurs on a quarterly and/or annual basis, where past budgets are reviewed and budget projections are either drafted quarterly or annually.
Businesses often use special types of budgets to assess specific areas of operation. A cash flow budget, for example, projects your business’s cash inflows and outflows over a certain period of time. Its main use is to predict your business’s ability to take in more cash than it pays out.
Why Does Your Business Need a Budget.
Without a budget, you may not know how your business is performing. A budget provides an accurate picture of expenditures and revenues and should drive important business decisions such as:
- Increase marketing.
- Cut cost.
- Hire or lay-off labor.
- Purchase equipment.
- Improve efficiencies in other ways.
A comprehensive budget also is a requirement for obtaining business loans from financial institutions or seeking equity funding from investors.
Most businesses have fixed costs that are independent of sales revenue, such as:
- Building or office eases or mortgage costs
- Loan payments (if using debt financing)
- Vehicle leases (or loan payments if the vehicle is purchased)
- Equipment (machinery, tools, computers, etc.)
- Payroll (if employees are on salary).
- Utilities such as landline phone and internet charges.
Variable costs increase or decrease according to the level of business activity. Examples include:
- Contractors’ wages or commissions (for salespeople).
- Utilities such as electricity, gas, or water that increase with activity.
- Raw materials.
- Shipping and delivery costs.
- Advertising (can be fixed or variable).
- Maintenance and repair of equipment.
If you’re planning on starting a business, preparing a budget plays an important role in determining your start-up and operating costs. The financial plan section of your business plan provides information on calculating your start-up and operating cost.
Making Budget Estimates.
It is important to be realistic with your budget projections. If in doubt, be conservative and overestimate your expenses and underestimate your revenues. It is particularly difficult if you are starting a new business and have no previous year’s budget figures to guide your estimates. In this case, it is typically much easier to estimate expenses than revenues.
As the budget year progresses the estimates should be updated monthly with actual figures, enabling you to check the accuracy of your forecasts. Note that there often are radical differences between actual and projected revenues and expenses due to unforeseen business circumstances and/or changing business and economic cycles, such as:
- Winning or losing a major client.
- Having to purchase or replace expensive equipment.
- An increase in rent.
- Hiring employees.
- An increase in competition.
- Changes in the tax code.
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