Creating a budget is vital to any business’s success, regardless of its size and financial status. Every successful entrepreneur cannot stress enough why business owners need to properly plan for a venture’s finances before they can make money.
A budget is essentially a detailed plan outlining a business’s source of finances and how it plans to spend it over time, as well as its operation goals over that period. It forecasts expected incomes, how revenue will be paid, and the differences between planned and actual transactions. A business without a proper budget is, ultimately, doomed to fail.
Here are three simple steps to follow when developing a budget for your business.
Step 1: Estimate revenues and expenses
Since a budget is a financial plan of income and expenses, the first step should be to make a list of estimated revenues and costs. You should already have an idea of the supplies your business must pay for and the incomes it expects from its sales. Once you have the exhaustive list and their timelines, you prioritize and group them to make a list easy to manipulate. For instance, essential expenses, such as rent and utilities, should be more important than bonuses.
Step 2: Set up revenue and expenditure tracking system
The effectiveness of a business budget lies not in its creation, but in how entries are accounted for. Every business must have an efficient way to keep track of how much is flowing into and out of business. A modern transaction tracking system such as an app or an excel sheet is sufficient to determine how much the company is spending on supplies, which expenses are unaccounted for, and how much in sales have been received so far. The key to proper budgeting lies in meticulous tracking of budgeted items against actual incomes or expenses.
Step 3: Adjust the budget as needed
Much like market trends fluctuate, the actual incomes and expenses of a business may vary from the budgeted figures. For this reason, your budget should be flexible enough to accommodate the changes and make it easier for you to monitor and evaluate the business finances. You should regularly carry out budget adjustments, such as daily, weekly, or monthly, depending on the nature and size of your business.
Budgeting can be a tedious and demanding task, but your business must succeed. These three steps are the bare bones of a commercial budgeting process, but it should help you get started in managing your business finances the right way.