BUSINESS FINANCE BUDGETING

Prepare a Working Business Budget for

Business Success

•••

Business Budgeting is a Necessary Part of Good Financial

Management

BY R O S E M A RY P E AV L E R Updated June 25, 2019

No matter how small, businesses have to use budgeting and have a working business
budget for good financial management. There are many small or micro companies
that operate without a business budget. If they have a budget, they have probably
drawn one up for a bank loan or for a business plan to show angel investors or
venture capitalists and then forgotten about it.

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Entrepreneurs are usually so focused on the product or service they are offering the
market that managing finances comes a distant second to them. Budgeting and
financial management are not exactly the most exciting things that an entrepreneur
can do. It's usually put off as new business owners are busy and don't want to spend
much time on financial matters. This is where they make their mistake. Small
businesses that avoid the financial details are far more likely to fail than ones that pay
attention.

The Working Budget

The term "working budget" means that it is a work in progress. The owner looks at it
every day, consults it, follows it, and makes adjustments. It's the game plan for the
business.

A working financial budget is necessary from the time an entrepreneur conceives an

idea until that idea is put into operation. An entrepreneur can't know if an idea is even
realistic for a business without a working budget. For the small business owner, the
working budget helps them assess the financial health of the company. The business
owner can't know where they are going or what potential opportunities or pitfalls lie
ahead unless they have a budget.

What Is In a Working Financial Budget?

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 A working business budget includes the money or sales revenue a company expects
to take in and the money it expects to pay out for expenses. A business owner should
complete a budget for a year and look at the variances between the budgeted figures
and the actual figures. Ideally, the business owner will project a budget out for a
couple of years.

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At the end of one year, the budget can be adjusted for the second year. If the
business needs to apply for a bank loan or wants to take on investors, it will have a
ready document to show them. It will actually be a quick look at how the company is
performing.

How Do You Come Up With the Numbers?

If you are an established business owner, you can use your own historical data. If you
are a new business owner or an entrepreneur with just an idea, you will need to do
some research. For example, you will need to research your sources of income. Who
will buy your product or service? How much business do you anticipate your
advertising plan will pull in? Have you set the price for your product? You may want to
look at other businesses selling a similar product or service before you set your price
or answer these questions.

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 These figures become your income figures on your budget. To be conservative,
Prepare a Working Business Budget for B
reduce them by one-fourth. If you are in a recessionary economy, you might want to
reduce them by more. If you are in a booming economy, you might not want to reduce
them at all.

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O N E -TA P S U B S C R I B E

Estimating expenses is probably easier. You have two types of expenses. Fixed
expenses are those like rent. They don't change from month to month. Write down all
your fixed expenses. Variable expenses do change from month to month. They would
be your utility bills, your advertising budget, and other items. Write down all your
variable expenses. Here is a handy business budget worksheet that you can use as a
format to keep you organized. Print it out and use it. You can add items to it if you
need to or mark items out that don't make sense for your business.

After you finish estimating your expenses, increase them by one-fourth. By reducing

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 your income by one-fourth and increasing your expenses by one-fourth, you are
being conservative and you may have some money left over for a contingency fund.

What Can Happen if You Don't Have a Business Budget?

You could easily go out of business. You have to be sure that you can make enough
cash flow and profit from your venture so that you can cover the expenses
associated with it. The only way to do that is to establish a budget. The budget gives
you some control.

GLOSSARY

The Importance of Keeping Fixed Expenses

Low in a Business Budget

ACCOUNTING SYSTEMS

How to Create a Business Startup Budget

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 BUDGETING

Here Are Tips on How to Build a Small

Business Budget that Works

RUNNING YOUR OFFICE

How to Make a Zero-Based Budget for Your

Business

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BUDGETING

How to Construct a Selling and

Administrative Expense Budget

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 Administrative Expense Budget

S TA R T I N G A B U S I N E S S

Creating a Business Action Plan -

Questions to Consider

BUDGETING

How to Prepare a Master Budget for Your

Company

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 FINANCES

What You Need to Know About New

Restaurant Expenses

C O S T-V O L U M E - P R O F I T

What Is a Contribution Margin?

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 ACCOUNTING BASICS

Here Are Some Key Bookkeeping Tips for

Small Business Owners

GLOSSARY

Why Your Business Needs and Budget and

How to Create One

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 BUDGETING

How Do You Create a Budget for Your

Business?

Our Best Money Tips, Delivered

O N E -TA P S U B S C R I B E

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