Strategy to Creating a Basic Budget

Strategy to Creating a Basic Budget. One of the oldest sayings in business is that you have to spend money to make money. But you have to spend your money wisely. And that's where budgeting comes into play.

A basic budget tries to anticipate your spending needs and forecasts your sales and other revenue. A budget helps you predict when money comes in and goes out so you can better manage your cash flow. It's also useful when dealing with bankers on loans. In short, a budget is a useful road map to guide your business through the year.

A good basic budget can:

1. Forecast the timing and amounts of your spending
2. Set realistic goals for income and expenses
3. Give you a standard against which to measure performance
4. Help you control your expenses
5. Show you when you're overspending so you can adjust

Action Steps
The best contacts and resources to help you get it done

Tap budgeting basics with financial software
The three main elements of any business budget are sales revenues, expenditures and profits. To create your budget, you'll need to anticipate a dollar amount for each elements. Existing businesses can look to past figures for guidance; new businesses must make an educated guess.

I recommend: For help getting started, try software such as QuickBooks or Prophix, which can walk you through the budgeting process.

Estimate your revenues
It's better to be cautious with your revenue estimates. If you fall short of projections, you could end up without enough money to cover expenses. It's also important to map out when revenues will arrive. For example, in a cyclical business like retail, you need to budget your cash so you'll be able to pay your bills during slow periods while you wait for the bustling holiday season to arrive.

I recommend: Get help forecasting sales with Forecast Pro software, which uses proven statistical methods to calculate your projections, or download revenue and sales forecasting templates from Microsoft Office.


Estimate your expenses
Calculate when and how much you'll have to pay for business expenses, including things like cost of goods sold, office supplies, rent, utilities, auto expenses, travel, advertising, professional services, loan repayment and taxes. Companies with employees have additional expenses, including salaries, benefits, employee business expense reimbursements and bonuses.

I recommend: BusinessOwnersIdeaCafe.com provides a first-year budget worksheet for startups that includes a list of common business expenditures. To build your expense forecast, try one of the Microsoft Office expense estimate templates.

Put it all together
Once you have all your numbers in place, you can begin to see where your money comes from and where it goes, which helps you direct your attention to areas that need improvement.

I recommend: Computer spreadsheets, such as Microsoft Excel, are the simplest way to build and work with your budget. You can also try plugging your numbers into a profit and loss forecast template from SCORE or into a cash flow template.

Strategy to Creating a Basic Budget