How to come up with a business budget and estimated profits

The best way to come up with a business budget is to create a budget manual. Once you have created the budget manual, which is the rules you will be following to create your budget, you are going to be ready to create your budget. And the best thing is that by creating your budget you will also be estimating your profits for each year because in order to accurately plan your budget you need to make a realistic estimate on what you will be making.

Difficulty rating: Easy to moderate

Step one:
First you will need to decide who is going to be participating in planning the company's budget process. If you are a sole owner then obviously only you will be planning the budget, if you have a partnership then there will be two of you planning the budget, etc. If you have more than one department then you will want to include the department heads from every department to join in the budget process, after all they know better than anybody what kind of budget they are going to need. But as the owner of the business it will come down to you to approve or deny the new budget.

Step two:
Review program and management achievements and fiscal performance for the year that has just ended. When doing this you should compare your budget from last year to your actual figures to see how close you came to following your budget and to see if any changes are necessary. You should also review your objectives and goals from the previous year to see if they were all meet or if not why they were not meet. After reviewing your prior year's goals and objectives you should start discussing what your new goals and objectives for the upcoming year are.

Step three:
Now you will need to estimate what your new costs are going to be in order to reach your new goals and objectives. When you are estimating your costs you need to take in both fixed costs and variable costs. Sometimes fixed costs are overlooked in the budget process because regardless of what is going on we still have to pay those costs. Although our fixed costs are not tied to our current goals or objectives, such as building our customer base, they still need to be accounted for because they are an integral part of running the business. Each cost should be listed separately. For example wages should have its own line item; raw materials should be on a separate line, etc.

Step four:
You will also need to estimate your income for the year. You can do this by comparing the last few years' income to get a general idea. If one of your goals is to increase your sales you should add in some extra income but always estimate on the conservative side.

Step five:
Now you need to compare your expenses and income that you have budgeted. Not all budgets have to balance but you must understand why they do not balance. For example do you plan on purchasing a major asset this year to help increase your business over the next year or two? If so you might be running on a deficit this year, but once your sales increase you will no longer be running on a deficit.

Other tips/resources:
Here are some basic questions that you will need to answer to help make accurate predictions of your business income.
 How much can you realistically sell next year?
 How much will you charge for your goods or services?
 How much will it cost to make your product?
 How much will you have to spend for operating expenses?
 Will you have to hire any employees? If you do how much are you going to pay them? And how many employees will you be hiring?
 If you have employees will they be working part-time or full-time or both? If both how many will be working part-time and how many will be working full-time? You also want to think about what you consider full-time hours and part-time hours.
 How much will you pay yourself?
 Do you need to borrow money for your business? If so how much are your monthly loan amounts going to be?
 Will you be providing employee benefits, such as sick days, health insurance, 401(k), etc?
 How much of the market do you or will you have? Basically this is determining how many customers you think you will receive each year.

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Categories: Budget,

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