What is common to every business when starting up? A plan. All businesses start out with one. Where to place the office, what equipment to buy, sales/service strategy, and of course– a budget plan.
Your business budget is:
- The state of your current finances
- Expenses, revenue, capital expenditures, and loans
- Future spending and income estimates
Most of the time, a budget is done yearly, then monitored and checked at least on a monthly basis.
You can always use your budget to compare the actual revenue and expenses if you have enough to keep afloat. A proper budget helps you know if you need to make cuts and if you have profit at all. Are you spending more than you are earning, are you using your money correctly to grow your business and keep it competitive? A properly planned budget is your ticket in these cases.
How can a business budget help you?
1. Budget Preparation – This is one of the most important parts of the business budget. During preparation you:
- Set goals and caps on spending
- Decide on spending priorities
- List funding sources
- Show possible revenue
Make sure to allocate revenue correctly as you anticipate your expenses monthly, quarterly or by year. If you have a big company, know which departments get the higher part of the budget.
Imagine a store with great sales on specific dates, like Christmas, Black Fridays, New Year, and Holidays. If you make most of your revenue on these dates, a budget will help you plan ahead for the year and help you turn a proper profit.
2. Evaluating Performance through your Budget. You can use your budget to know how your company is performing for the year. There are budget types you can use for this:
- Zero-based. You re-do the budget every year, based on your company’s performance.
- Variance based. You map your budget based on actual vs expected revenue and expenses and adjust accordingly.
- Performance-based. Look solely on your performance vs expenses to adjust the budget.
Business budget planning allows you to properly put your company’s money to proper use. When, where, and how much. Without an appropriate plan of budget, your company will simply go around in circles and have issues meeting the long-term goals that you have set. Plan it properly and use it correctly, you’ll have a better chance of achieving success for your company.
Contact Peter Witts CPA today to get the help you need with your government contract accounting.