Establishing budget with all its components
Setting the budget for a business involves planning the income and expenditures. This is usually broken down into months so that the planned budget and actual figures can be compared.
Every business needs to budget revenue and operating costs. Let’s use the term revenue budgeting: this focuses on the overall projections for money coming in and money going out. This is a critical part of a small business’s growth process and should be maintained and reviewed on a weekly basis.
Creating a working revenue budget should be a simple process. For small business owners I recommend the following:
- Personal/family expenses: In order for a small business to grow, personal expenditures have to be included in the revenue budgeting process. Take a sample of all expenditures over the last three months and use them as a guide to determine the monthly outgo in each category. The total needed to cover your personal/family expenses will show up as a single line item, on the expense side in your business revenue budgeting ledger.
- Non-business revenue: If part or all of your family expenses are covered by another income source, either eliminate the line item from your business budget or include the difference between what is available and what is needed.
- Business expenses: These expenses fall into two categories:
o Start-up expenses: These include all the items you need to run your proposed
business. Until these numbers are known and the needed start-up capital is available,
there is no use going any further.
o Operating business.
- If your business has been in existence for at least six months, you have a track record of your monthly expenses from which you can determine a monthly average.
- If these figures are not available, then you have to research those costs and estimate your monthly expenses. There are many on-line sources that can help you identify possible future business expenses.
My view on revenue budgeting at an early stage is simple: add your monthly personal/ family expenses to your monthly projected business expenses and that is the base revenue needed to sustain your business. Yes, we need to add a monthly reserve amount for unexpected emergencies.
With this figure, the next step is to look at the revenue sources your business has and then develop your action plan to generate that amount. You now have a monthly goal and the ability to check your business’s financial status on a weekly basis.
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