Whether you are a business guru or a small business owner just starting out, you cannot underestimate the value of having a budget. Most business owners struggle to keep up with their finances, and this leads to losses or business failing over time.
A budget provides you with a guideline of what to expect in terms of expenses and income. Furthermore, it helps you come up with realistic financial goals aimed at evaluating your business’ performance. Additionally, a budget helps you make any necessary changes and plan ahead.
Before you start creating a budget
Most business owners leave all their financial work to their accountants or bookkeepers. This shouldn’t be the case. In as much as you have a lot on your plate, you should make time to sit down with your accountant and know what adds up and what doesn’t.
Some of the areas that you need to evaluate before coming up with a budget include:
Each business has different streams of revenue. To know how each of these forms of revenue work, you need to break them out separately. Have your interest income, products, services categorized.
Cost of sales
The cost of sales may include the direct costs incurred during production, e.g. cost of materials and labor. If you are in a service business, you only have a cost of sale that relates to selling, while manufacturing firms will have a cost of goods sold.
Analyze what your operating costs are. Determine if they are paid annually or on a monthly basis. You can further track your expenses, such as wages, into hourly and salaried rates.
Having all these three details will help you develop a chart of accounts set up. The budgeting process will involve collection of historical data, which includes last year’s revenues and expenses. Be sure to set realistic revenue targets and involve the right people. Finally, review your budget as changes occur.
If you’re struggling to keep up with your business finances, you can hire a small business development consultant who will guide you through the areas you need to look at, as well as help you create a budget that works for you and your company.