How to Write an Annual Budget Plan
An annual budget plan is defined as a document that details the projected income and expenses of an individual, business entity, or organization within a period of one year. Businesses typically use this document to keep track of their financial standing within the year.
But just like making personal budgets, it can be hard for businesses to stick to a yearly budget plan. Follow the easy steps we’ve outlined below and you’ll realize how easy business budgeting really is.
1. What Are Your Income Sources
29% of new businesses fail due to a lack of funds. Take this into consideration when writing an annual budget plan. You must first look into income of your start-up within the past year. And if you haven’t launched your business yet, create an income projection first.
2. What Are Your Expenses
Next, determine what your company’s expenses are. This includes fixed expenses like rent, employee wages, tax, debt, insurance, etc. Also, include any unexpected expenses like equipment repairs, utilities, advertising costs, and supplies.
3. Make a Profit and Loss Statement
Create a profit and loss statement based on the income and expense lists that you have made at the start of the budget planning process. Add all your income sources and then deduct your total expenses from it. The gross amount will be your profit.
A P & L statement will reflect whether your company made a profit, barely broke even, or didn’t earn a profit at all within the past year. Use this document as a basis for creating a projection of what your next year’s Profits and Losses will be.
4. Make an Emergency Fund
Don’t forget to add an emergency fund into the mix. Adding this item into your budget plans gives you peace of mind and the assurance that you can pay for any unexpected expenses.
Also, when your business earns a profit, always prioritize the replenishment of your emergency fund.
5. Adjust the Budget Plan Monthly
As the year goes on, make it a point to adjust your annual budget plan. For example, if you get a profitable month, you may increase your next month’s emergency fund contributions. And if you get a lean month, you may decrease or do not contribute to your emergency fund at all.
It is up to you and (your management team) on how frequently and how well you adapt to different market and business conditions. A good budget plan should offer you the flexibility to do all these things quickly and efficiently without affecting your business operations.
6. Incorporate Driver-Based Planning Forecasts
For a more effective annual budget planning, investing in Driver-Based Planning Forecasts is a may be the best thing any entrepreneur or management team can do. This refers to the identification of different business needs within a specific period of time using various business data analysis. And then, this knowledge is used to create a business strategy forecast.
Your management team will need training and should be given the explicit power to make more informed business decisions.
7. Get an Accountant
Hire an accountant who can help you track your business’ financial standing. He or she may also provide sound financial advice that will keep your business afloat.