The popular saying, “Money can’t buy happiness” is somewhat inaccurate. In a world where many things depend on what one can and/or cannot buy, money plays a very important role in one’s happiness. This is especially true when it comes to businesses - big or small. This is why a business budget plan is one of the primary things you must consider and prepare when operating your business. This business budget is something that multiple aspects of your business will rely on. Thus, money management is one of the most important tasks that you have to handle. But fear not. This article will discuss the importance and tips for creating a business budget plan.
Business Budget Plan
A business budget plan is your business plan for handling your business's finances. This is not just about how you handle the money per se. Business budget planning is also about properly managing your money among the different aspects of your business. Your business budget plan considers the money that goes into your business (revenue) and the money you must pay to different partners (expenses). Consider that while you come up with different ideas to increase your revenue, you must also shoulder the expenses of bringing these ideas to life. So when you create a business budget plan, you not only look into how much money goes in and out, but you also get a sense about which of your business endeavors are actually worth what it is cost. With all the different aspects of managing and establishing a business, a good business budget and a great plan of action give you better control in handling your business.
If you are just starting a small business, creating a business budget plan can be simple - if you have a background in accounting or finance. But to give you a heads-up, in the same way that some different departments and aspects go into managing a business, there isn’t only one type of business budget. Let’s talk about some of the different types of business budget that you might have to do or encounter:
Master Budget. This kind of business budget plan is the complete picture of the financial health of your business. This encapsulates all the financial activity - your revenues, expenses, performance, current liquidity, etc.- of all the different aspects and departments. This is usually used and managed in big businesses as it has more individual departments and costs/revenue centers.
Operational Budget. Unlike the master budget, this kind of business budget plan focuses more only on the flow of money within the operations of your business. This mainly accounts for the income and expense analysis of your operations and its projections for a certain period - weekly, monthly or yearly. This business budget helps you look into how your operations are doing and evaluate what you should keep doing and what you need to improve on.
Financial Budget. This business budget plan focuses more on the assets and liabilities of your business. It looks more into the overall financial health of a company about its operations and other aspects of the business. The financial business budget of a company, especially the most successful ones, is usually one of the main factors that stock investors look into before they back their interest in your company.
Cash Flow Budget. Last on our list, this business budget plan is usually the baseline business budget and the one that most businesses just create - especially small ones. As its name implies, this business budget focuses on how cash and money flow in and out. This not only takes into account the cash from revenue and expenses of the operation, but it also includes how you pay for other payables and how you handle receivables.
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Importance of Business Budget Plan
Now that you know all about the importance of a business budget, let’s talk more about how important it is to create a business budget plan. You need not only to be diligent in creating a business budget plan, but you also have to be honest and accurate with yourself and your business. Here are some of the perks of a good business budget.
Work as a guide to evaluate the financial health of your business.
Now that you know the concepts about business budget planning, let’s move on to its actual application to your business, shall we? Remember that creating a business budget plan is not only about gathering and looking at information. It is also about planning on what to do with the facts that you have gathered. Your business budget plan is not about just looking into your business budget, it is more about knowing how to properly improve and use it for your business. Here are five simple steps on how to create a business budget plan of your own:
1. Start with Your Revenue
Looking into your revenue is a good starting point when you are creating a business budget plan. Take note that your revenue is all the income that goes into your business, without deducting the expenses. This does not necessarily only come from your business operations but also from other sources (Loan receivables, other income, etc.). Looking into your revenue for your business budget plan also involves looking at the numbers and analyzing its past movement. This will give you an idea about the best and worst moments of your business regarding revenue.
2. Evaluate Your Expenses
After looking at what goes in, you must also look into what goes out. As someone highly involved and immersed in the business, you must know the expenses you must pay regularly. Take note that a business budget plan not only accounts for the variable expenses that come with your operations and the fixed costs that the business has to shoulder. Knowing this will help you know how to account for and identify all the necessary and unnecessary expenses the business is paying.
3. Get Your Profit/Loss Statement
Your profit/loss statement is created when you deduct your expenses from your revenue. This will give you the actual profit/loss that your business has gotten in a certain period. This number tells you how your business is actually doing - in consideration of all the revenues and expenses of the business. Your business budget plan is much closer to completion after you have determined this because you now have the information about what you currently have and enough data to consider and plan ahead.
4. Forecast and Plan Your Business Budget Management
With the information and data you have gathered and analyzed, you now have enough to proceed with the planning part of creating a business budget plan. By knowing what you have, you now can evaluate what you can do. But in addition to that, based on your business's past performance, you can accurately determine the best actions and times to enact those actions. Your business budget plan should also reflect forecasts of your business performance using all the other information you have. These are all that make your business budget plan very useful - not only do you have a guide as you continue with your business, but you can also clearly see the effects and outcomes of your actions (and how you can divert them when they don’t go your way).
Business budget planning may become gruesome and long, especially as your business grows. This is why some businesses, especially big ones, hire a team of accountants and finance professionals to create a business budget plan. This is the reality of things, so don’t beat yourself up too much if you feel like you cannot handle creating a business budget plan on your own. But now that you know its definition and the different kinds of business budget plans, their importance, and how to create a business budget plan, you are more prepared and armed to create your business budget plan. This knowledge is the tool you need to make the best business budget plan for your business and help make your whole job more manageable.
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With a free website builder such as Strikingly, money is not a big deal. With all the free features and tools that Strikingly allows you to use, you have a truly fantastic way to get most of your business endeavors and plans into action without crippling your business budget. And if you must upgrade to a paid Strikingly account, know that incorporating it into your business budget plan is a good move because it is an excellent investment that will reap more benefits than costs. So sign up now and let Strikingly help you stick true to your business budget and achieve success!