What Is a Business Budget?
A business budget is a plan outline of business's financial and operational goals. A budget helps to assign resources, evaluate a business's performance, and formulate plans. When you start up a business, it is a regular assignment of the owner to budget monthly or annually. It lets the owner match the expenses and revenue of the business to determine whether they have enough money to fund their operations, expand the business, and generate income for themselves. Without it, you may not know your business's performance.
How to Create a Business Budget
A business budget can be an assurance of long-term success. Business Budgeting is one of the most powerful financial tool accessible to any small business owners. Without it, there is a big risk of spending more and earning less or reversely, not spending enough money on the development of the business. It can be intimidating especially for starters, but the process on how to create a business budget is not that difficult if you follow these steps thoroughly.
1. Examine Your Revenue
Start with the main goal of you having a business: revenue or income. Add all the income sources to find out how much money you produce in a month. When you calculate your income, calculate for your revenue and not profit. Profit is what remains if you deduct the overall expenses used in your business. Repeat it monthly and eventually, you can distinguish your annual income. Expect that there is a season that your business will flop, but always have your backup plan.
2. Subtract Your Income
After the first step, add your fixed costs. Cost is a financial aspect that is needed for the operation of the business. The fixed cost can be varied daily, weekly, monthly, or even yearly. Once you have calculated your overall fix cost, subtract it from your income.
3. Determine Expenses
Variable expenses are those materials needed for the business that changes depending on the volume of use. It is determined through your sales budget. The utility is one of the best examples of it. There is also a type of expense that can increase the profitability of your business. It is called a discretionary expense. During lean months, you can lower your discretionary expense to keep up with the marketing plan. Spend most to the variable expenses that have long benefits for your business.
4. Set Aside a Contingency Fund
A contingency fund will be served as a backup project for unexpected happenings that may affect your business. For instance, you need to travel for deliveries and your car is broken or a calamity strikes your home and business and you need a relocation, a proposal of contingency fund would be recommended to avoid these dilemmas.
5. Include the Profit and Loss Statement
Calculate your overall income and expenses and add it all up. If it turns out to be positive, then congratulations! you gain some profit. If not, it's okay. There are ups and downs especially in business because it is not profitable every time, especially if you are still starting.
6. Outline Your Next Budget
It is a smart move if you plan your budget earlier. Refer your future budget to your profit and loss statement and learn from your mistakes. Make a landscape plan of your corporate budget and surely, your business will last long.