A budget is defined as a financial document that plans and estimates future expenses and income.
The budgeting process is conducted by companies or individuals and estimates whether the business can operate within its projected expenditure and income. It can be simply prepared using pencil and paper, or a spreadsheet program on a computer. There has also been an increase in the release of budgeting software that can aid businesses.
How budgets can help small businesses
An adequately updated and prepared budget can help:
The most useful purpose of a business budget is to help gather information for the business plan, such as expenses and items required for start-up. A budget will help you understand what it will cost to launch your business, including inventory, computers, software and fixtures.
Secure a business loan
Once a business is running, budgets are needed to secure business loans, which will demonstrate to the lender your credibility and cash flow situation. For a business finance broker in Gloucestershire, consult a company such as http://www.choicecommercialfinance.co.uk/.
A budget provides information on how money is spent each month, as well as how much salary you can take.
Understand required profit
By setting your budget using a “required budget” principle, you will understand how much money is required to meet your expenses. This budget will begin with expenses paid out each month, with the income calculated to meet the balance.
How do I create a small business budget?
– List your sources of income each month such as interest and sales. If applicable, also deduct a percentage for non-payments or late payments in expected income from customers.
– List fixed expenses such as phone, utilities and rent, which are made each month. If there is difficulty in making payments, attempt to cut these expenses down or make them variable expenses.
– List variable and possible expenses, which are non-recurrent and tied into sales. If you experience fewer customers, there may be reduced driving or phone expenses, for example. Create columns for budgeted and actual expenses and income, helping you see the budget working in real-time.
– When estimating expenses and income, estimate your expenses high and income low. By remaining pessimistic, when an unexpected cost arises you will be prepared.