Every business needs a budget. To go without one isn’t going to see you on an unconventional route to success. Not having a budget pretty much leaves you in the dark about a lot of things. It tells you what you need to bring in and how much you actually are bringing in. What you have to spend and what you actually are spending.
But these aren’t the only reasons you need a budget. A budget is also an essential part of any business plan. If you’re looking for a loan for your business, then the lender is going to want to see your budget. If you think transparency within the company will help with motivation and control, then the budget will come in handy there, too.
We’re going to take a quick look at the things you need to consider when developing a business budget. A lot of this could actually help you out in your personal finances, too. However you use this advice, make sure you do use it.
The goal. Budgets aren’t all the same, nor do they have the same goals. You might be looking to maximize profit. You might be a non-profit hoping to control spending. You might need a specific budget not for the business as a whole, but for a particular endeavor. (Setting up a new department, for example.) The goal is going to determine precisely how you’re going to do this. It will determine what components of your business budget are the most important.
Considering income. Your business may have several official sources of income. You might generate everything directly from sales revenue. Maybe you’ve also got some trading going on as part of a fundraising exercise. You may also have some money coming in from investors. You need to determine how much your business is going to bring in on a monthly basis. Be sure to keep the different sources of income labelled as such, though!
The fixed costs. The expenses that you’re guaranteed to pay every month? These are your fixed costs. To be honest, this part of the budget development process is probably the easiest. Have a look through your past bank statements and figure out how much you’re spending every month and on what. Find out what outgoings are necessary every month. If there are any variances in these costs, make a note of them.
Taking control. A budget is there to give you some control. This applies not only when things are going right, but also when things are going wrong. When budgets deviate unexpectedly. When sudden action is required. This is why you also need to think about getting a good budget control process in place. This is how every business has to practically implement their budget at some point.
Leave a little slack. You can’t control every little thing. With this in mind, you may be wondering why you should bother with a budget at all. Isn’t total control the point? Well, there aren’t any guarantees. (That’s why we mentioned the budget control point!) So make sure you factor in some slack when it comes to your budget.
Photo by Sergey Nivens | Shutterstock
Mia Guerra
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