What is a business budget?
Having an effective budget is like a secret weapon in your business arsenal, and the one thing that will help you stay the course and keep the doors open.
A business budget is a financial plan that outlines the expected income and expenses of a company over a specific period, usually a year. It can serve as a roadmap for the company's financial activities and helps the management team to make informed decisions.
What makes a good budget?
A good business budget accurately reflects the current financial position as well as the future goals of your company.
A successful budget should be flexible enough to accommodate changes in the business environment and allow for adjustments as necessary. It should also be as detailed and comprehensive as possible, including all anticipated expenses, revenue streams, and sources of funding.
Different types of budgets
Having a budget is essential for keeping your finances in check. However, there isn't a one-size-fits-all approach to budgeting. Here are some of the most common types:
- Operating budget: This focuses on the day-to-day expenses and income of a business.
- Capital budget: Capital budgets are used to plan for long-term investments in fixed assets such as property, equipment, and facilities.
- Cash flow budget: A cash flow budget is used to forecast future cash inflows and outflows. This is critical for managing your company's cash resources, ensuring that there is enough cash available to cover expenses or dry spells.
- Master budget: This is a comprehensive plan that includes all of the other budgets mentioned above.
- Sales budget: A sales budget is a forecast of the expected sales revenue for a specific period. A sales budget is critical for planning production and inventory levels, as well as estimating the resources required to meet your sales targets.
How do you prepare for a business budget?
Budgeting can be intimidating, but with good planning and some basic groundwork, getting an accurate and effective budget together shouldn't be too daunting.
We’ve outlined five key steps that will make the process easier:
- Set financial goals: Determine your revenue targets, cost reduction goals, and other key performance indicators that will help you measure your success.
- Track your income: This includes any money you earn from sales, investments, or other sources.
- Categorize expenses: Categorize your expenses into groups such as rent, utilities, payroll, marketing, and supplies. This will help you understand where you can cut costs.
- Create a budget template: This can be as simple as a spreadsheet that lists your income and expenses for each month of the year.
- Review and adjust: Finally, review your budget regularly and make adjustments as needed.
If you are creating a business budget to help you manage your cash more effectively, make sure that you hit these markers and include the following items.
- Sales revenue: This is the amount of money that the company expects to generate from the sale of products or services.
- Operating expenses: These are the expenses associated with running the day-to-day operations of the business, such as rent, utilities, salaries, and marketing expenses.
- Cost of goods sold (COGS): This is the cost of producing or acquiring the products or services that the company sells.
- Capital expenditures: These are long-term investments in fixed assets such as property, equipment, and facilities.
- Taxes: This includes any taxes that the company is required to pay, such as income tax or sales tax.
- Interest and debt repayments: This includes any interest payments on loans or other debt, as well as any repayments of principal.
- Cash reserves: This is the amount of cash that the company wants to hold in reserve to cover unexpected expenses or to take advantage of opportunities.
- Contingency funds: These are funds set aside for unexpected expenses or emergencies.
If you need assistance, contact OCFO and learn about our remote accounting services and available packages. We can assist with your initial cash flow planning and management, and make sure that your business is set up for profitability. Find out more at ocfo.com, or reach us at email@example.com.