How To Create an Annual Business Budget

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Calculating Business Budget You’ve probably been reviewing (or will soon review) last year’s finances in preparation for finalizing your budget for 2014. If you haven’t been tracking your budget throughout the year, you may be seeing a surprise here or there: Budget variances that you didn’t expect.

If you’ve been significantly over or under budget in some key areas, spend some time exploring the reasons behind the variances. Then build those into your budgeting process for next year. You’ll also want to take the advice of small business owner and sba.gov contributor Caron Beesley, who writes about building and using a business budget that's useful all year long.

Budgets are, of necessity, dynamic, Beesley says, but tend to be difficult to plan and maintain even in the best of times, due to cash flow issues, supply chain problems, unexpected events—you name it. But your business is never static, and neither should your budget be. So, she provides several tips for making your budget a fluid and adaptable tool you’ll actually use in the coming months:

    • Focus on your budget as a valuable roadmap that will not only help you reach your goals but also as a tool that will give you control over your time, money and inventory.

 

    • Update your budget monthly. Don’t wait until the end of the year to discover and understand your variances! These are valuable road signs that will tell you whether to stay the course, detour or take another route at various points throughout the year.

 

    • Make only those changes that will have a positive impact. Speed up your receivables, and track the results. If marketing’s falling short, increase your spending and measure the outcomes.

 

    • Be responsive to unexpected changes. What if a big client cuts his spending or leaves entirely? Go immediately to your budget and start making adjustments in all areas affected, from hiring to cash flow.

 

    • Be budget inclusive; tie incentives to it. Get everyone to buy in and get on board by rewarding budget performance in whatever KPIs (key performance indicators) you choose.



Inc.com can help you get started with developing a budget that will function like a map or GPS would in your car, keeping you on track and headed in the right direction. Must-have budgeting components include the following:

    • Sales and other revenues.

 

    • Total costs and expenses, including fixed costs (those that remain the same), variable costs (those that correlate with your sales volume) and semi-variable costs (those that can vary with business volume, such as advertising).

 

    • Profits.



Your budget should operate like one of the following basic equations, depending on how you look at it:

a.) Sales = total cost + profit

 

OR

 

b.) Sales – total cost = profit


Drafting your business budget gets easier when you’ve got a few under your belt and can refer to last year’s. But if this is your first budget rodeo, take heart.  There are a few steps that can help you get started:

    • Target your sales and profits.

 

    • Calculate your operating expenses.

 

    • Figure out your gross profit margin.

 

    • Take some time to readjust your numbers.



It’s easy to be intimidated by the budgeting process, but don’t be. You’ve just got to dive in to get started. And by all means, don’t hesitate to reach out for some help in the way of an accountant or other business professional. Inc.com also recommends some terrific resources to tap during your budgeting journey:

 

 

    • An assortment of free printable budget worksheets to try from Docstoc, a marketplace for sharing professional documents.

 



Image courtesy of patpitchaya / FreeDigitalPhotos.net


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