Complete Guide Budgeting is a process whereby future income and expenditure are decided in order to streamline the expenditure process. Budgeting is done in order to keep track of the expenditures and income. It serves as a monitoring and controlling method in order to manage the finances of a business. It begins by deciding upon the financial goals according to which the budget will be made.
Projected Cost Business budgets should be dynamic financial documents that help guide your decision-making throughout the year.
In addition to a basic list of estimated revenues and expenses, budgets should contain formulas that help show projections. Understanding the basic elements of a small-business budget will help you create one that helps you keep your business on track from month to month.
Revenue Forecasting One of the most essential parts of the budget process is projecting your sales revenues. While you might have irregular revenues such as profits from investments or the sale of assets, knowing your core revenue streams will help you form the foundation of your budget.
Use historical sales data, surveys of customers and projections from your sales staff to estimate your revenues as accurately as possible. Develop conservative and optimistic projections to help you plan budgets that address both scenarios.
Expense Estimates Once you have a good idea of your revenue, you can more accurately set expense levels. Dividing your costs into production and overhead expenses is a fundamental part of developing a business budget.
Examples of production expenses include materials and labor, while overhead expenses include marketing, rent and phones.
Cash Flow Projections Small-business owners often make the mistake of creating budgets that show income and expenses, but not when they arrive or come due. This can cause cash flow problems that damage your business.
You might need to pay your suppliers and workers for the materials and labor necessary for that order in February. Projections An essential part of creating any budget is including formulas that project long-term income and expenses. For example, your budget document will record your monthly expenses as they come in each month but should also estimate your average expenses each month as you update your numbers.
This will show your estimated final annual expense at these levels. Create formulas that let you quickly find your average monthly income and expenses and year-end projections.While you might have irregular revenues such as profits from investments or the sale of assets, knowing your core revenue streams will help you form the foundation of your budget.
The first important factor in preparing a budget is your income.
When preparing a budget you need to focus on your net income, not gross. The amount of money you take home each month is what you use to pay your obligations.
Your first “budget” shouldn’t actually be a budget at all – it should instead reflect your spending in an average month. Don’t forget the irregular bills, either, like homeowners’ insurance, car licenses, auto insurance, property taxes, and so on.
Chapter 4. THE BUDGET PREPARATION PROCESS A. OBJECTIVES OF BUDGET PREPARATION During budget preparation, trade-offs and prioritization among programs must be. Think of your personal finances as a business, and with any business you have costs required to stay in operation.
When preparing your budget you must take every expense into account. Anything that you spend over the course of the month must get recorded in . Some of the components of the master budget are briefly explained as follows: i. Materials and utilities budget: This budget provides for acquiring raw materials required for production, spare parts for maintenance, labour time, machine time, and energy consumption and so on.