People are not exaggerating when they say that every penny matters. Ask a person who cashed $4,000 in literal pennies if you don’t believe it. If you do not plan or track your budget properly, you wouldn’t know where your dollars end each month. Not only that, but you will also be missing out on valuable opportunities to reduce costs and to invest money where it will get you the highest returns.
Creating a business budget plan is the only way to determine if you are spending money the way you should and how you think you are. When they first start a business, most people are a bit confused on where to start for creating a business budget plan. We are here to help. In this post, we will guide you on business budget planning and give you the steps you need to follow to create a business budget plan that will allow you to allocate your resources in an optimum manner. Our objective is to explain the importance of business budget plans so that you do not miss out on any extraordinary investment opportunities that come your way. But before that, let’s describe what a business budget is.
What is a Business Budget?
A business budget plan is a detailed and written plan that outlines where the business will spend its money and resources monthly, quarterly, and annually. The financial resources that a business has from various sources need to be divided and allocated correctly. If your business budget is not feasible, you will end up losing money on channels that do not give you appropriate returns.
An easy way to understand the concept of a business budget is to imagine that every dollar you have is given a job based on it best use. Implementing and reviewing your business budget plan means you now observe and analyze if the job given to each dollar was performed well by it or not.
An excellent way to determine if your business budget plan is working well or not is to compare it with that of your competitors. Although your competitors will not reveal their business budget to you, there are ways to get glimpses of it through competitor analysis and market research.
Business budget planning helps you with the following.
Forecast how much money you expect to make
Plan where you should spend that money
Analyze the difference between your expectation and reality
What Makes a Good Business Budget?
Creating a business budget plan is one thing. You can either create one yourself, involve the other stakeholders, or entirely outsource the job to a third-party financial services provider. But quantifying how good your plan works is another level of business budget planning. It is best to do that on your own to have all your secrets safe with you and plan your future strategies accordingly.
A good business budget plan is always flexible and straightforward. If your internal or external circumstances change, your budget should be able to flex to show you clearly where exactly you stand. Every business budget must include these seven components.
1. Your Estimated Revenue
Your estimated revenue is the amount of money you expect to make. Revenue comes from sales, and thus estimating revenue involves forecasting the sales of your goods and services. This metric does not include the amount you spend on your marketing or any other efforts to increase your sales. It merely calculates how much money flows into your business. Once you have your estimated, forecasted, and accurate sales levels, you can compare them with the other players in the industry to see how good your business budget plan is.
Fixed costs are the regular and consistent costs that do not increase per sale or per good manufactured. Fixed costs include your business premises rent, insurance, utilities, accounting, and other legal services fees, bank fees, equipment leasing, and more. These costs need to be included in your business budget plan to ensure you do not forget any consumption of your financial resources.
3. Your Variable Costs
These are the costs that change according to your sales or production volume. These are closely linked to the prices of goods sold. Variable costs include your inventory, raw materials, production costs, and other associated costs such as packaging, labeling, and shipping fee. In certain businesses, variable costs also include any sales commissions you are giving out, credit card fees, and travel costs. A good business budget plan outlines the amounts you expect to spend on each of these items.
The salaries you pay to your staff are sometimes included in the fixed costs and sometimes in your variable expenses. For example, the compensation for your full-time in-house employees will be associated with your firm’s fixed costs, while the commission for your sales team could be counted under your variable costs. Make sure you file the different compensation packages in the correct section of your business budget plan.
4. Your One-Off Costs
Besides the fixed and variable costs, every business also incurs certain one-off costs. These include the expenses outside the usual work you do to run your business. Examples of these could be moving offices, changing furniture, buying a new tool or software, conducting market research, or organizing an event to launch a new product. These costs are part of preparing a feasible business budget plan.
5. Your Cash Flow
This is the most crucial part of a business budget plan. The cash inflows and outflows that occur in your business determine how many funds you have available to spend on your business growth and expansion. If you have more money flowing into your business during a certain period than flowing out, you have a positive cash flow. If it’s the opposite, then you have a negative cash flow. Cash flow is like oxygen for a business. It needs to be monitored on a weekly as well as monthly basis. It is a complicated subject. You could be doing excellent in your business growth and still be out of cash to pay your suppliers. Calculating and knowing your cash flow at all times is critical in building, reviewing, and maintaining your business budget plan.
6. Your Profit
Your profit is what you can take home after deducting all the expenses from the sales revenue that you generate. A business needs to grow its profit to grow and expand. This section of your business budget plan will state how much profit you want to make based on your estimated revenue, projected expenses, and other costs discussed above. The higher your profit margin, the more successful your business budget.
Once all the above components are ready, you need a budget calculator to formulate your business budget plan. A budget calculator will help you determine where exactly you stand in terms of your business budget planning. It gives you an easy-to-read summary of all the numbers and sections included in your budget.
Why is a Business Budget Plan Important?
Now let’s talk about the importance of business budget plans. You can enjoy numerous benefits if you have a thoroughly built and executed business budget. A few of them are listed below.
It lets you see where your business is positioned in the market concerning your competitors.
It helps you allocate your resources more efficiently for the next quarter.
It enables you to identify any affordable opportunities for your business in terms of your cash flow during a specific period.
It indicates how well your business performs and how efficient your business operations are.
It gives you a clear insight into the different departments’ functionality and helps you spot any conflicts or lack of balance in the workflows.
It allows you to build a good marketing strategy by showing how much budget is available to promote your products or services.
It makes the overall process of running your business more organized.
It helps you plan for the growth and expansion of your business accordingly.
Entrepreneurs need to give attention to many aspects of a business, including proper business budget planning. In this digital world, many of those aspects can be made more accessible. At Strikingly, we work hard to develop tools and features that make the process and experience of creating and maintaining a website straightforward for you. Every business needs a professional website, and so does yours.
Image taken from Strikingly
If you want to save your business budget but want an attractive and responsive website, it is time for you to check out Strikingly.
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Along with creating a business budget plan, you can also create a fantastic website to showcase your business in only one day!