If you’re looking to be successful in 2018, and everyone should be, then creating a budget can help. A budget can help you to keep track of your cash flow and expenses, giving you a better view of how your business is performing. Some banks or lenders may want to see it to make sure that your business can afford to make re-payments, while it can also help you to make large financial decisions. If you are considering moving to a new office, investing in a new piece of equipment or upgrading your IT systems, a budget can help you to decide if you can realistically afford it.
A 12-month budget can help you to achieve your targets and determine how much you need to make to stay afloat or make a profit. Whereas, a 3 to 5-year budget can help you to achieve your long-term goals. There are many ways to create a budget, but a simple budget is easy to follow and works well. Budget for the next 12 months and each month record your sales forecast, expenses and estimated profits.
If you are somewhat established, you can use previous data to inform your monthly sales forecasts. However, if you are relatively new, then you won’t have this information. You will have to rely on in-depth market research and competitor analysis to help you forecast your monthly sales. By speaking with suppliers and manufacturers, you can gain a good understanding of the prices of the products or services that you intend to sell. Doing your research will mean that you can build a reasonably accurate budget.
When it comes to calculating your expenses, you need to include every cost no matter how small it may be; this is the only way to get a budget that accurately reflects how your business is operating. You should regularly review your budget as the months go on to add any additional expenses. There are three main categories that your expenses fall into, fixed costs, semi-variable costs and variable costs.
Fixed costs are the ones that remain the same throughout the year, think of insurance or office rent. They will be a regular monthly or a one-off annual cost. A semi-variable cost is one that usually remains the same but is subject to change. Expenses such as salaries or business mobile costs would fall into this bracket.
Variable costs can change randomly, like credit card fees, commission or raw product materials. When it comes to expenses, if you don’t know the exact cost, it is always better to overestimate than underestimate, this will help you to deal with any unexpected costs.
The most important part of a budget, once you have calculated your predicted monthly spend and monthly sales you should have an idea of your monthly profit. This can help you to plan ahead, make long-term goals and plan for expansion. Using a budget to predict your profits for the year ahead helps you to plan for re-investment. If your budget shows a rapid increase in growth, then you will most likely need to hire a new member of staff, knowing your profit margin will help you to plan ahead for this.
A continuously updated budget will help you monitor your income and expenses and make plans for the future. If you are looking to expand and be successful in 2018, then a budget will be a valuable resource.