All businesses need to have a proper operating budget to ensure profitability; however the creation of a budget doesn’t need to be a complicated exercise. Depending on the size of business, budgets can be very simple or extremely complex, taking advantage of a multitude of strategies. Although anyone can theoretically develop their own budgets, it is highly suggested to contact a trusted accountant to help you get started with a budgeting strategy that will work best for your specific needs and goals.
Your budget should contain two main sections, your expenses and your income. Each section has specific criteria, as seen below.
When using a budget spreadsheet, such as the above, it’s also important to also choose your time period of measurement. It is suggested that a monthly budget be used, as it will allow you to compare your budgeted and actual numbers in a closer interval of time, meaning your budgets will be more accurate and will have less of a chance of having a big difference. We also suggest using your historical expense data to average out your past expenses in each category to help establish more accurate budgets.
The fixed expenses category will contain things such as utilities, supplies and other expenses that are constant for the time period measured. The variable expenses category will contain other expenses that could vary depending on the time period measured, such as the additional cost of overtime hours due to high demand.
Forecasted or budgeted income would be the next section to fill in on your spreadsheet, where you can estimate the income for the time frame. At the end of the time period, ensure to fill in the actual amount of income and record the difference.
The last step is to calculate the budgeted and actual numbers to find if you are operating at a loss or profit. Once found, it is important that you analyze the data to determine the reason for the difference between the two, so you can identify exactly what you need to fix going forward. Once this is done, you are able to revise the next budget to be more accurate, and hopefully operating at a profit.
Your budget is an important aspect of your business and overall success. It allows you to plan ahead and prioritize your spending, while allowing you to measure your overall financial success. Finally, it allows to you make informed strategic decisions to continue growing your business operations.