No matter how small scale your business is, it is necessary to have a budget for good financial management. Put simply, a budget is a tool that allows you to estimate income and expenses based on future plans and objectives for the business. The process begins by establishing assumptions for the upcoming budget period. These assumptions are related to projected sales trends, cost trends and the overall economic outlook.
Maintaining a good short- and long-range financial plan enables you to control your cash flow instead of having it control you. A budget should be prepared during the two months preceding the financial year-end to allow sufficient time for information-gathering.
Below are some of the questions that will be used as a basis for your assumptions in the budget process;
- How much can be sold in year one?
- How much will sales grow in the following years?
- How will the products and/or services you’re selling be priced?
- How much will it cost to produce your product? How much inventory will you need?
- What will your operating expenses be?
- How many employees will you need? How much will you pay them? How much will you pay yourself? What benefits will you offer? What will your payroll and unemployment taxes be?
- What will the income tax rate be?
- What will be the political environment in terms of policies that affects your business such as taxation?
At the end of every period, it is important to compare the actual performance of the business with the budget. Where there are deficits or gaps, you could put in place actions to address this in the future.
We encourage you to prepare a budget for your business for better financial management! We have provided a budget template to serve as a guide, please feel free to download using the link below ………………