Setting a business budget is a great way to improve business planning, reduce wasteful spending and increase profits. When it comes to running a successful business every penny counts, and without a budget you could be missing important opportunities. A budget is the only way to manage your finances and this useful guide will help you decide exactly what to include.
What is a business budget?
A budget is a detailed financial plan, designed to outline where your money will be spent, either monthly or annually. Every penny held by your business has a role to play and your budget will help you make the best use of these funds. The budget will help you estimate your income, plan spending and let you compare your plan with reality. The best budgets are simple yet flexible enough to change as your business changes. So, what should a business budget include?
1) Your predicted revenue
Your predicted revenue is the amount you expect the business to earn from the sale of services or goods. The estimated income should be the first line of your budget, as it will determine the figure below. Many businesses choose to base this figure on the previous years performance, although if you are just starting out you could use industry averages.
2) Your fixed costs
Next, you will need to list your fixed, regular costs which do not fluctuate, such as rent, energy bills, insurance, accounting costs, bank charges, equipment leasing costs and legal services. These are amounts which you know your business will have to pay, regardless of your income levels.
3) Your variable costs
Unlike the fixed costs listed above, your variable costs will change in line with sales volume. These costs are closely related to anything involved in the production or purchase of your business’ products or services. Common examples include raw materials, production costs, inventory, shipping, packaging, sales commission, travel and credit card fees.
The cost of employee salaries can fall into both fixed and variable costs. The regular team of staff are usually considered a fixed cost, although flexible production teams are often treated as variable costs.
4) Any one-off costs
These are costs which fall outside your usual business activities, such as costs for moving offices, buying equipment and updating software.
5) The cash flow
This is the money which flows in and out of your business, with a positive cash flow showing that the income level is higher than the outgoings. The easiest way to calculate the cash flow is to subtract the money available at the beginning of your budget and at the end. It is important this figure is monitored regularly, as it will determine any potential changes in your budget.
6) Your profit
The profit is the amount your business makes after the expenses are subtracted from your revenue. Your budget will enable you to plan how much profit you have the potential to make, based on the estimated revenue and costs. If your estimated profit is lower than required, you will need to rework your budget and consider raising prices.
Although your budget will help guide your business through the coming months, there may be times when your business needs additional funds or help with reducing outgoings. Here at BusinessComparison, we specialise in helping businesses compare the costs of everything from loans and credit cards to energy deals and insurance.
Our goal is to help your business find the best deal available on the market from our vast panel of suppliers. To find out more about how we can help your business, please contact our dedicated team today.