As a small business entrepreneur you definitely wear different caps. One such cap is being the financial expert who is able to make the right financial decisions that will help the business stay healthy and prosperous. To effectively wear this cap you should be able to create and analyze a budget for your business.
But, Is A Business Budget Really Important?
Many small business entrepreneurs do not see a budget as being important. Of course, this may be as a result of ignorance or sheer laziness. The fact is that a business budget is something you must commit to preparing as a small business entrepreneur. This is for several reasons amongst which include:
1. It helps you better fulfill your business objectives and strategies
2. It provides you with a good picture of the expected income and expenses for a particular period
3. It enables you to compare your anticipated financial goals with the actual numbers
4. It helps you to make key decisions with confidence and keep you on course in the months ahead
5. As a web entrepreneur having a budget will greatly help you stay disciplined and not waste your money on the many shiny objects being sold online as “sure killer!”
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How Do You Create A Business Budget?
If you’re a small business owner you don’t have to hire some expensive CPA even if you have no prior knowledge of how to create a business budget. No matter the type of business you are running, your budget can be created to suit you and your business. And, the good news is, you can do this by yourself. You simply need to understand the core components that go into making an effective business budget.
Creating Your Small-Business Budget Step by Step:
Step 1: Design a spreadsheet with a column for Income, Expenditure, Budgeted amount and Actuals respectively – For every income and expenditure item you will need to record the budgeted amount and then the actuals.
Step 2: Determine and enter your expected income – Do this after taking a look at your past actuals. If however you are just starting out and do not have previous figures to work with, simply take a look at what the average figure is in your line of business and use that. Please note that the success of your budget will mostly depend on your projected or estimated income. You must therefore be realistic and rational when determining your expected income.
Step 3: Categorize your expenses – While you may decide to put your expenditure items into different categories, the simple way to go is to divide them into Fixed Costs and Variable Costs. Expenses that will be entered in the Variable Costs column are those that change in proportion to the activity of your business. Items like electricity and wages. While items like rent goes into the Fixed Cost column.
Step 4: Calculate and post your actuals at the set time – This may be weekly, monthly or quarterly depending on your choice. Using your daily figures calculate the actual figures for both income and expenditures and post these in the Actuals column.
Step 5: Calculate and analyze the differences between budgeted amounts and the actuals – There is the need to continuously monitor your budget. You need to compare your budget with what actually happened. Is there a difference between the actual numbers and the budgeted figures? To do this, create two ‘difference’ columns – one as a figure and one as a percentage. With these two columns you will be able to analyze the budget.
This is important as it will help you monitor your business progress and ensure that your finances are not being wasted on unessential items. Also where the business is overpaying for economic resources, this will be revealed so that measures can be taken to remedy the situation.
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An effective business budget will greatly help you run your business more smoothly and profitably instead of just running on guesswork. It will help you as a small business owner to determine whether you have enough money to fund your operations, expand the business and generate more income. It will ensure that you have enough money to keep the business going even at a time of an emergency.
Over to you: Are you presently running a budget for your business? What other business budget tips can you share with your fellow small business entrepreneurs?