How To

Business Budgeting: Why it’s Important & How to Get it Right

Money makes the world go round and keeps the cogs firmly turning within our businesses. This is why it is important to keep a budget and stick to it – especially if you’re a small business or if you’re just starting out.

While budgets are fundamental for smooth sailing within a company, they can be a daunting task to approach. This article outlines the importance of having a budget and how to go about making your budget fool-proof.

Why do I need a budget for my business?

Simply put, your budget tells you how your business is performing, what’s going well and what needs improving. More importantly, it will help influence your upcoming financial decisions, which will help you navigate potential expenses, such as:

  • Potential staff hire
  • Your marketing and advertising strategy
  • Equipment/supplies/bills
  • Your own personal cash flow
  • Any other surprise expenses that may crop up.

Step 1 – How to Determine Your Income

It may sound like a no-brainer but in order to create a budget, you need to see everything that’s coming into the business. Naturally, your sales figures are a good place to start. Then you can add on any additional sources of income.

Be sure to account for all income sources and then tally them up to get a clear, concise picture of how much money is flowing in each month.

Step 2 – Estimate your fixed costs

Your fixed costs (monthly expenses that stay the same) come next. These typically include expenses such as staff wages, property rent, fixed utility bills, website hosting, and so on. It is wise to keep a record of these in a document or a cash book.

If your business is just starting out and you don’t yet have financial data to review, use projected costs. E.G.: if you’ve signed a lease for office space, include the monthly rent you will pay moving forward.

Step 3 – Add on your variable expenses

This can include travel costs, variable (usage-based) bill costs, shipping costs, sales commissions, etc.

Obviously, you cannot predict the exact tally of these costs each month, but a general prediction will serve you with your budgeting and help you decide on whether or not to commit to any upcoming financial plans.

Step 4 – Including one-time expenses in your budget

While it is unlikely you will have one-time expenses to factor in every single month, it is wise to keep in mind that they will crop up (for example, a business training course, fixing/replacing a malfunctioning piece of equipment, etc.)

Step 5 – Finalising Your Business Budget

Total Income – Total Expenses = Total Net Income.

Each month, gather all of these costs together to view where your finances are. This will allow you to plan your budget better in future, as well as home in on where you’re perhaps spending a little too much.

While budgeting may seem like a tedious and time-consuming affair; well-executed business budgeting will provide the financial insights you need to make the right decisions for your business to grow and prosper in the future – and you will be glad you invested the time!

If you feel like you need extra support with your bookkeeping and accounts, help is available.

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