Budgeting is such a crucial part of business management but the importance is sometimes overlooked by business manager.
Estimating and matching expenses to revenue (real or anticipated) is important because it helps small business owners to determine whether they have enough money to fund operations, expand the business and generate income for themselves. Without a budget or a plan, a business runs the risk of spending more money than it is taking in or, conversely, not spending enough money to grow the business and compete.
Every business owner tends to have a slightly different process, situation, or way of budgeting. However, there are some parameters found in nearly every budget that you can easily employ. For example, many business owners must make rent or mortgage payments. They also have utility bills, payroll expenses, cost of goods sold expenses ,interest and tax payments. The point is that every business owner should consider these items and any other costs specifically associated with his or her business when setting up shop or when taking over an existing business.
What To Do with Revenue
With a business that is already up and running, you can make assumptions of future revenue based on recent trends in the business. If the business is a start-up, you’ll have to make assumptions based on your geographic area, hours of operation and by researching other local businesses. Small business owners can often get a sense of what to expect by visiting other local businesses that are for sale and asking questions about weekly revenue and traffic patterns.
After you’ve researched this information, you should then match the business’s revenue with expenses. The goal is to figure out what an average weekly expense for overhead, utilities, labour, raw materials, etc. would look like. Based on this information, business owners may then be able to estimate or forecast whether they’ll have enough extra money to expand their business, or to tuck away some money into savings. On the flip side, owners may realize that in order to have three employees instead of two, the business will have to generate more in revenue each week.
Click here for six useful budgeting tips