If you are starting your new business, you need to create a budget. Your business won’t grow, and you won’t meet your goals without accurate financial projections.
Your budget plays a role in the accounting cycle. It helps you ensure that your financial transactions are accurately accounted for.
Creating a business budget can feel overwhelming. However, it shares many similarities to creating a personal budget.
You need to know your assets and try to guess your upcoming expenses. Next, you need to plan for and grow your revenue base. Here is some of the data your business needs to create a budget.
Making a Budget For Your Small Business
Start with your revenue and costs for the past year. This will give you the base information you need when creating your new budget.
If this is a new business, focus on the numbers from the past few months. Or look at similar companies to get an idea of estimated expenses and revenue. No matter how you start tackling the project, you should know it is a lot easier than you think.
Gather Revenue Data
Gather information about your revenue. You want to get more than just the total revenue you have for a month, a quarter, or a year. You want specifics. This includes data on when your revenue increased and when it dropped. This information will help you manage your cash flow.
For example, if you are in retail, your business may earn a big chuck if revenue is during the holiday season. On the other hand, sales may grind to a halt in January and February. Including this data in your budget will help you plan for hiring employees and purchasing inventory.
Write Down Your Fixed Expenses
Fixed expenses are expenses that never change. For example, on the first day of each month, you will have to pay your rent or mortgage. In addition, you know that you have to pay your insurance, utilities, and your employees at set times during the month. Factoring in these fixed expenses will help you ensure that your budget accurately accounts for them.
Collect Data on Variable Expenses
Variable expenses, as the name implies, change from month to month. For example, you may need to hire temporary employees. Or you may need to pay money to rebrand your business or change your marketing campaign. When factoring in variable expenses, be liberal.
Budget for the Unexpected
Project forecasting is where your business tries to foresee unexpected changes and prepare for them. To successfully prepare for the unexpected, you need to leverage business intelligence, forecasting, and performance insights to grow your business and grow your staff with confidence.
The more data you have and the better the technology you use, the more accurate your business insights. You can use these business insights to make strategic decisions. These decisions will impact sales, delivery, and every other aspect of your business. For example, it will allow you to tailor your budget to address the unforeseen financial expenses that need the most attention now while at the same time creating long-term strategic goals.
An accurate budget will give you real-time visibility into company performance. It will allow you and your team to assess what is happening in your business and make proactive adjustments to reach strategic goals.
Gather Your Data in One Place
Once you have gathered your data, you want to put all the information into accounting software. If not, use a spreadsheet or another centralized location for your data. The primary benefit of storing your budget information in one place is tracking your expenses and revenue. This helps you see how accurate your budget is and whether you need to adjust.
Factors to Consider When Creating a Business Budget
Be conservative when budgeting revenue—plan for growth by calculating growth-related expenses. Do not forget to plan for the unexpected. If you don’t, one catastrophe could mean the end of your business. Think about your long-term goals as you plan your make your budget.
Successfully Manage Your Business Revenue
If you make a budget, you are well on your way to successfully managing your business revenue. Keep things as accurate as possible. Remember, a budget is only as good as how well you stick to it.