Every business owner has goals, and achieving them requires a bit of planning. Because goals are linked to money, a proper plan includes devoting a little time to budgeting.
Fortunately, you don’t need an elaborately detailed budget like that of a multinational corporate behemoth. Simply having an outline connecting spending and revenue is sufficient. Setting aside a planned amount of cash for spending later assures you have sufficient funds for future plans to succeed. A budget tells you what is and is not a financially sound decision.
Making the Business Budget
You can create a budget using the old-fashioned tools of pencil and paper, but this is only a good starting point. After sketching out a general income and spending pattern for next year, placing the numbers in electronic format will help when filling in the remaining details.
Spreadsheet applications on your computer will work nicely. Perhaps your bookkeeping software gives you an option to place budget figures into it. This will benefit you later when comparing your budget to actual results.
Start the budget process by estimating an amount of monthly revenue based on available resources. Your income is limited by how much time you work, the equipment you possess, and the prices you charge.
Moreover, you may need to adjust income based on your cash resources. That’s because higher income may lead to paying more expenses prior to collecting from your customers. The money you have for expenses puts a cap on how many customers you can serve.
Using the Business Budget
The budget shows a timeline for building cash over time. A controlled growth rate and a tight rein on spending allow your cash to gradually increase. This capital reserve is then available to fund further growth with new customers.
The timing for a rising cash flow depends greatly on when customers pay you. A lot of businesses are paid a month or more after work is completed.
That means your budget will show you deploying your available resources and paying your bills one month, but collecting the revenue over the next month or two.
Over those next couple of months, you will spend more time and money on additional work. Your budget should indicate, however, that you have a little more cash than when you started. That’s because the revenue received exceeds your costs. This is the profit you aim to accumulate and then spend for tackling more customers.
To ensure that you achieve profit accumulation, monitoring your actual business performance is crucial. The budget predicts increasing business cash flow, but turning that expectation into reality necessitates comparing actual to budget.
Obtain your statement of revenue and expenses after the first few months projected in your budget. You want the report that has revenue you already collected and expenses you already paid. Put these numbers in the same spreadsheet as your budgeted revenue and expense categories for the same months.
Is your revenue coming in as you expected? Is your spending on track with the budget?
Most likely, you will uncover areas where you have excelled and others where you’re falling short. Making the necessary adjustments will propel you to meet your annual goals.