The Importance and Effective Tips on Business Budgeting
After your business plan, business budgeting is perhaps the next most important aspect of your operations. Just as your business plan provides a clearly demarcated roadmap as to where the business is going to go and how it is going to get there, the business budget is the equivalent of that roadmap that shows how much it’s going to cost to get there and why.
The fact of the matter is, your business needs to carry out its budgeting. Be it annually, bi-annually or even quarterly, it does not matter, what matters is that the business has a clear budget that it will stick to. The budgeting is the business’ way of making financial provisions for expected expenditures as per every department. Capital resources are often limited and that is why you need to carefully plan for whatever monies you may have within your business accounts. Business budgeting has the following advantages:
Advantages of business budgeting
- It limits expenditure to ensure there is no wastage of capital
- Creates a clear roadmap for future business operations
- Helps businesses plan for future growth and expansion
- Makes accountability more fluid for tax purposes
And generally, show a business owner just how much capital they have and what they need to get to where they want to go. Big organizations have several accountants who handle this sort of budgeting and these accountants are in turn equipped with powerful software that make their jobs much easier and more precise. For a small business owner, business budgeting may be something that you have to do yourself.
That does not mean that it is to be taken lightly. In order to have a business that operates fluidly without unnecessary risk of over-expenditure, you need to keep a close eye on your budgeting and only spend money on aspects of the business that will bring in more money in both the short and long run. Before we go into some budgeting tips that every business owner should consider, let us look at some of the necessary budgeting techniques that you can employ.
Necessary budgeting techniques
Just like every business owner has a different approach to how they run their business, every business owner will have a separate approach to budgeting. That being said, there are some common parameters that should be included in every business’ budget. For example, unless you own the business, there is a very good chance that you have to pay rent or some sort of mortgage payment.
Apart from rent/ mortgage, there are utility bills with which you need to contend. There are also payroll expenses to consider, cost of buying goods or daily operational costs for your business, as well as tax and interest payments. These are just some of the costs that come with running a business. Within every budget, it is necessary for every business owner to constantly consider these parameters as well any other that specifically applies to his or her business.
Effective business budgeting tips
Use a budgeting software
This is not a preserve of the big companies. Even the ‘little man’ can and should use a budgeting software. There are several in the market today that can easily be found online. Most of the software are inexpensive but very effective. Not only do they increase your precision, but they also make the budgeting process easier. Most of the budgeting software have suggestion fields that show you which areas of the budget you need to pay more attention to and how to efficiently run your books and keep excellent records.
Take your time budgeting
Your business budgeting is not something to do on a lazy Saturday afternoon when you are out drinking with the boys/girls. This is something you should take seriously and should create the right amount of time to do it right. You may even need to hire a consultant or a CPA to take care of this for you if you feel you do not possess the necessary know-how.
The problem with underestimating how much it’s going to cost you to run your business for a given period of time is that you end up getting stressed about money and eventually diverting funds from departments that cannot do without it. There are those expenses that are predictable; things like your rent, office stationery and such. But there are those that are not, such as travel and so forth. These are the areas where you should at the very least, allow yourself some leeway. Just in case it costs more than you thought it would.
Find ways to cut costs
This is something that you can only do once you are up and running. The only way you can find out which areas within your budget are flexible enough for you to play around with is once you have done the budget itself and run a full budgetary cycle based on operations. You can cut costs by taking advantage of discounts offered by suppliers. You can also do so by making orders only during new billing cycles. It will all depend on your specific business on-goings. One thing is certain though, this will take some creative thinking on your part.
Budgeting is not only an integral part of any business, it actually helps the business owner to be more organized. By budgeting, you will know exactly where your business is headed and approximately how much it will cost to get there. Budgeting, like your business plan, should be dynamic, but kept in check.
No matter how you look at it, coming up with an effective business budget may require professional consultation. If you have the budget for it, you can hire a freelance accountant to do your books for you. A professional freelancer will be able to take an objective look at your business model and give you their best evaluation and way forward.
The ultimate goal here is to make sure that your business has enough money to keep running, to grow, to remain competitive and even more for the whole-essential emergency fund.