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How to create a business budget

manatdesk19160745.jpgHaving a business budget in place is an essential part of running a business. Many times small businesses fail because of a lack of planning. Having a budget is the best way to plan, for the future growth and expansion of your business. This is true whether you are launching your first business, or have years of experience as an entrepreneur, the importance of having a budget cannot be overstated. This is because creating a budget, for your business will provide a guideline for expected income and expenses, and enable you to compare your anticipated financial goals, with the actual numbers. Your budget will serve as a barometer, for how your business is performing. Having a budget will also enable you to plan ahead, and determine any changes that should be considered.

Many business owners become overwhelmed by the process of creating a budget. It is important to understand that a budget can be created in any way that is most comfortable for you. You can use pencil and paper, a computer spreadsheet program or business accounting software. There are also many online sites that can guide you through the process, for free.Keep in mind that while you may also choose the time period (monthly, quarterly, annually) the budget may encompass, you should consider creating a monthly budget, so you can compare the forecasted numbers with the actual numbers at closer intervals.

You will need the following basic categories to begin your budget, in whatever format you choose-

  • Fixed expenses

  • Variable expenses

  • A budgeted subheading for each column

  • A actual subheading for each column

  • Forecasted income

So once you have determined what format you are going to use, you can then begin inputting your budget numbers. Here is how you to do it-

  • Begin by inputting unchanging expenses such as:rent, loan payments or pre-paid costs. These costs should be under fixed expenses.

  • Changing expenses such as utilities, supplies, etc. should be put under variable expenses.

  • Remember to determine budgeted expenses, by averaging past expenses in each category. You can insert the figures under the "budgeted" subheading that you should have for expenses. Keep in mind that if you are in the midst of starting your business, and don't have previous averages to work with, you should consider researching the costs associated with your line of business, and creating averages based on your research.

  • The next step is to insert your forecasted income from earnings, and any other expected revenue sources, under the "budgeted" subheading for income. At the end of the month, you can then insert your actual income and expenses, in the "actual" columns.

  • The final step is to calculate the difference between the budgeted figures, and the actual numbers.

If there is a difference between budgeted and actual figures, you can either identify a potential problem and fix it, or capitalize on a potential opportunity, you had not initially recognized. Remember that after determining the reasons for any differences, you should revise the next month's budget with your new-found information in mind. It is important to remain flexible and make changes to your budget as needed.

Keep in mind as you budget you may need to continue adjusting. During these tough economic times, small business owners may be seeking ways to trim expenditures, to increase cash flow. If your business expenses need to be reduced, determine which items are nonessential to your business and cut those items.Finally, consider consulting a trusted CPA, financial advisor or banker to help you create a budget. A trusted professional can help get you started on a budgeting system that will work best for your business' needs.

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