Business Finances Archives

Business Budgeting – Prepare a Business Budget

Business BudgetsWhen writing your business plan, you will need to include your forecast revenue and expenses. To help with business forecasting and setting business benchmarks you can use to measure your success, you will need to carry out some business budgeting. But why prepare a business budget? What are the pros and cons for completing business budgets?

 

Pros

  • Provides business owners with a practical budgeting tool
  • Helps a business monitor its expenses, and adjust their needs accordingly to their expected performance
  • Allows a business to plan for capital expenditure on plant equipment and machinery
  • Assists with obtaining business loans from relevant institutions
  • Helps with planning business growth

Cons

  • Takes time to prepare a detailed business budget
  • Most people don’t use a budget so it becomes an annual event that once done, is forgotten about
  • Often, the predicated income and expenses are not realistic enough

To help overcome some of these obstacles, we have provided you with a free microsoft excel budget spreadsheet. In this budget spreadsheet, you can enter your expenses and income per category. Using this excel spreadsheet, you can also enter your actual results and see the difference o n a month-by-month basis..

You will be amazed at how empowering this can be, once you start doing this. As you produce your P&L report (either from your bookkeeper, accountant, or own financial software) for each month, enter the data in the appropriate categories of the budget. As you do, the difference will show in either red or black.

Find out more on Profit and Loss statements, and how to create your own using a free profit and loss template.

Using the free budget spreadsheet template, it is the RED numbers that you should be concerned with. The higher these numbers are, the more attention you must pay to the particular category. For example, your expenses one month for stationary were $458.99, and your budget was $450. The result would be a -$8.99 difference. You wouldn’t worry about this.

However, in the same month, your staff wages were $5680, and your budgeted amount was $4700, leaving you with a difference of –$980. This area would need to be investigated, so you are aware of this large difference. If there was any way you could avoid it happening again, this investigation would show you.

Setting up a budget takes time. That is one of the main reasons why businesses never bother with doing it. We have set up a template to save you hours both in the setting up of the budget, and in how you can use it throughout the financial year. In this file you will be able to set your budget for each month, and it will produce Year-to-Date figures, a basic Year-to-Date Profit and Loss statement (similar to Steve’s), and graphical charts about your best performing products. Download your Budget Template here.

Every aspect of the business needs to be included in the budget. All of your expenses, which will include your promotion strategies, are included. Your revenue can be broken down into product lines, or you can simply put a figure in for total sales. Often, the categories that a business uses in their Profit and Loss statements serve as the items to include in your budget.

Top Shelf Groceries Budget

Take a look at Steve’s budget for Top Shelf Groceries, before you write you own. He has incorporated his expenses for his promotions as well as his everyday expenses into his budget.

sample budgetClick the image to enlarge it.

Have a go at preparing your own budget. If you do have financial history, then gather that and use it to make an educated guess for your future earnings.

Keep in mind that a business budget is not a hard-and-fast business tool. It is important to work toward a budget, but it is a guide. Get started today with the free microsoft excel business budget spreadsheet.

For ease in sharing any completed budget, convert the final file to a PDF so others can read it on their device and see all the details.

Convert PDF to Word, Excel, PowerPoint, Publisher - Free Trial

Profit and Loss Statements

Your business plan will outline how you will operate your business and what you will sell to make a profit. A successful small business knows which product or service they offer (or will offer) that gives the greatest return. Once you know this information you will be able to tailor your marketing efforts to maximise the return from each of your products.

Depending on what industry you are in, you will also be able to compare this performance of the product/service against industry standards. If you have yet to create your product or service, this will give you an insight into which product lines you should invest your time and resources in.

This information can be gathered from two primary places – your Profit and Loss statements, or P&L, and industry reports. Your bookkeeper or accountant will be able to help you out if you don’t have access to a P&L report.

A P&L is a Profit and Loss statement that small businesses use to show the income per product line, and the expense per category, with a net profit or loss at the bottom for a given period for the activity of the business.

To calculate the best product line for the business, simply convert the dollar amounts into percentages by dividing the dollar amount per category by the total revenue, and then multiply by 100. The highest percentage of your revenue is going to be the best performing product.

We have provided a comprehensive budget template file for you to use. In this file you will be able to set your budget for each month, and it will produce Year-to-Date figures, a basic Year-to-Date Profit and Loss statement (similar to Steve’s), and graphical charts about your best performing products. This file can be downloaded in our business resources section of the site.

Take a look at Steve’s results here. He thought his best performing line was fresh food goods. As you can see, his Green Goods category was his best performing product range. If he had built a plan with Fresh Goods as the main product line to sell, he would have missed out on an enormous area of opportunity.

Once you have gathered your data, have a look at your profit and loss statements. If you have them going back for over a year, then take a 12-month period, and calculate which product line raised the most in sales. Then you will have the information needed to set the stage for your Product Strategy.

If you have the industry standards, compare them to your results. If you have no data to compare, then use the industry standards as a target for your results to come. Using the information that financial reports can provide is a sure way to avoid becoming a business that achieves results through ‘unknown’s”.

Consider using and managing your own business finances if you don’t have a bookkeeper who can do it for you. Software products such as Quicken Deluxe 2012 or MYOB FirstEdge – Small Business Management and Accounting are often easy to use, and help you stay on top of your business finances. They can produce many different reports also to help you analyze your performance.

Maximize those areas that are performing well by analyzing your own Profit and Loss Statement.