A business budget is essentially a plan for how a business should spend money. A business needs to know where its revenue is coming from, and what it can afford to spend in order to sustain growth. This article will provide you with the tools needed for creating an appropriate budget that suits your needs as a business owner.
A complete guide on how to create a business budget will help you stay organized and focused on your goals.
What is a business budget?
A business budget is a plan that shows how a company plans to spend its money in the short and long run. A budget can be used as a tool to keep track of where your money is coming from and going out.
It’s important for businesses to have a budget because it allows them to stay organized and focused on their goals. Without a budget, businesses may find themselves struggling financially due to a lack of planning.
A business budget helps you in the following ways:
- Helps your company stay on track with its goals
- Keeps you organized and focused
- Tracks where a business’s income is coming from and going out to
What should your budget include?
There are a few key components that your budget should include. Below is a list of what you should consider when creating your business budget:
- Fixed and variable expenses
- Short-term and long-term goals
- Income sources
- Cash flow analysis
Fixed vs Variable Expenses
A fixed expense remains the same each month, while variable expense changes depending on how much product or service is sold. For example, rent would be a fixed expense, while the amount of gasoline used in a month would be a variable expense.
It’s important for businesses to understand the difference between these two types of expenses because it will help them create an accurate budget. If all of your expenses are considered variable expenses, then you may end up underestimating your budget.
Short-term vs Long-Term Goals
When creating a budget, it’s important for businesses to set both short and long-term goals. Short-term goals are things that you want to achieve in the next 12 months, while long-term goals are typically aimed at a five or ten-year time frame.
Your budget should be tailored to help you reach your desired goal. For example, if your goal is to purchase new equipment within the next year, then your budget should include money allocated for this purchase.
Income Sources
Another key component of a business budget is tracking where your income is coming from. This will allow you to see what revenue streams are most valuable to your company.
For example, if you own a restaurant that is open for lunch and dinner, then your income would be most heavily concentrated during these two time periods.
If the majority of your revenue comes from sales at lunchtime, but you find yourself struggling to make ends meet in the evenings; it may be beneficial to cut back on expenses during this period. This can potentially help you increase profits overall by focusing more on what’s bringing money into the company.
Cash Flow Analysis
It’s important for businesses to track their cash flow as part of creating a budget. A cash-flow analysis breaks down where money is coming from and going out over a certain period of time (monthly or yearly). It also provides information about how much extra capital a business has on hand.
This is important for businesses to understand because it can help them make better financial decisions. For example, if a company knows that it will have a shortfall in cash flow next month, it may need to take out a loan or increase its prices.
EasyTips on Creating a Business Budget
- Create a multi-year plan
- Track where your money is coming from and going out over time
- Break down fixed vs variable expenses
- Set short-term goals that align with long-term goals to help you reach larger, overall company objectives.
- Understand the importance of cash flow and use this information to make sound financial decisions.
Best Business Budget Tools
- WiseBudget: This tool allows you to break down expenses and organize them by category. You can also see how much money is leftover at the end of each month, as well as what your average monthly income is.
- Mint: Mint is a great budgeting tool because it provides users with an overall summary of their financial situation. It tracks spending habits across multiple accounts (checking, savings, etc.), which then helps people create budgets that better fit their needs.
- Quickbooks: Quickbooks is a great tool for businesses who want to track their income and expenses in detail. It offers a wide range of features, such as the ability to create invoices and track inventory levels. Quickbooks also automatically suggests tax categories so that you can keep your information organized.
- Xero: Xero is a cloud-based accounting software that helps businesses manage their finances. It offers features such as invoicing, tracking bills and expenses, and generating reports. Xero also integrates with other apps, such as PayPal and Stripe, so businesses can have a more holistic view of their financial status.
Remember, every successful business needs a budget to sustain and grow – this guide will help you create an effective one for your company. Be mindful of fixed and variable expenses, short-term and long-term goals, income sources, and cash flow when putting together your plan. With careful planning and execution, your business will be on its way to reaching new heights!
