Every successful business needs a budget. Victor Butcher says that “Your Business Budget is like a roadmap for your company “. You need the roadmap to understand where you’re going with your business. Many time we see Muslimahs complaining that they are out of business budget. They want to grow their business, but they do not have a Financial Plan. We hear this many times, Women seeking growth with low cost to no cost psychology and it is also one of the biggest barrier in their way to success..
Do you have the same issue?
In this article we will work around creating a simple business budget.
What is budget?
A budget can be defined as an estimation of the revenue and expenses over a specified future period of time. The budgeting process may be carried out by individuals or by companies to estimate whether the person/company can continue to operate with its projected income and expenses.
Through the definition we get two things that we need to keep in mind while preparing budgets.
- Need to develop good sense of income and expenses.
- Need to identify specific frame of time.
Budgeting is also about balancing your expenses with your income. If you don’t have balance and you spend more than what you make, It will affect your business growth. Many people don’t realize that they spend more than they earn and slowly sink deeper into debt every year.
HOW Budget Helps You In Generating Financial Gain.
A budget is a powerful business tool that will help you make better decisions. It enables you to develop and maintain a thorough understanding of the internal financial workings of your business. The purpose of a budget is to give you a visual description of the expected financial results of your business activities. It also helps co-ordinate the activities of the organization by compelling you to examine relationships between your own operation and those of other departments. Other essentials of budget include:
- To control resources
- To communicate plans to various responsibility centre managers.
- To motivate you to strive to achieve budget goals.
- To evaluate the performance of employees
- For accountability
Basic Business Budget Worksheet
Here we have Business Budgeting for Muslimahs, this is a worksheet you can use to set up a basic business budget. Depending on your particular type of business, you may have to include different types of income or expenses but we present this worksheet for you so that you should have a general idea of the types of items you should include in your business budget. You can customize your business budget according to your business requirements.
|Basic Business Budgeting Worksheet
|Bank Service Charges
|Deposits for Utilities
|Installation/Repair of Equipment
|Subscriptions and Dues
|Utilities and Telephone
|Surplus or Shortage* (Spendable income minus total expenses and investments)
Surplus * When your income exceeds from your expenses
Shortage* When your expenses exceeds from your income.
How to Draft a Simple Business Budget
There is no hard and fast rule for creating budgets. You can create in a way that is most comfortable for you and that suits your business. To make it simpler for you I present the process in following steps.
- Identify Business Needs
- Determine Format of your budget
- Determination Of TIME Horizon
- Classification of Your Expenses
- Realistic Estimation Of Your Income
- Review, Revise and Update your budgets
Identify Business Needs
While drafting budget there are a lot of choices for you regarding time frame and format of budget and you can create budget as you like and as your business requires. So in my opinion the first step of creating budget is identify business needs and then decide what sort of budget your business demands, for example whether it requires a simple paper pencil budget or needs a more sophisticated ones.
Determine Format of your Budget
After identifying your business needs you will be better able to decide how you will create a business budget. You may use a pencil and paper to prepare one, create a budget spreadsheet or use the one attached in the end of the article.
Determination of Time Horizon
Determine whether you will create a monthly, quarterly or annual budget. Depending on your business, you may benefit from any of these, but creating a monthly budget allows you to see how your predictions compare with your actual income and expenditures, without waiting a long time.
Classification of Your Expenses
You need to classify your expense into fixed and variable cost.
Fixed Cost Include fixed expenses in your business budget. Your fixed expenses section should include costs that will not change, such as lease bills for commercial space or mortgage payments. You may include loan payments here as well.
Variable Cost Add in variable expenses. Things may have different costs each month. For example, utility and phones bills may vary from month to month. Consumable supply costs may vary as well. To settle on variable expense figures to include in your business budget, you may use the average of these expenses over the last six months or year.
Realistic Estimation of Your Income
Try to become more realistic in estimation of your income and Forecast your earnings and place the figure you settle upon in the Income section of your budget. Leave the actual income space blank until the end of the month, quarter or year.
Review, Revise and Update your budgets
Budget creation is not a one time activity you need to review it revise it and update it when it requires. So you are required to analyze your budget at the end of the month, quarter or year to determine whether your projected expenditures and income were in line with the amounts you actually earned and received. You can do this by subtracting the actual expenses and income from the budget figures or vice versa. Start with the number that is higher. For example, if your actual expenses were more than the budget expenses, subtract the budget expenses from the actual figures to see the difference between the numbers.
Setting a budget is really important for making sure you achieve your financial goals and maintain a steady Cash Flow for your business.