What Is A Budget?
A budget is a spending plan that includes everything you will spend money on. A good budget is a spending plan that includes everything you will spend money on and stays within your income. A wise budget includes everything you will spend money on, savings for a 'rainy day', savings for large purchases, giving, savings for kids, and investment for retirement and still stays within your income. I suspect the wise budget is a bit over the top for you if you're new to budgeting. Caution! No matter how detailed your spending plan is, if it does not include everything you spend money on, or, if it does not address where you will get the money to cover all your expenses, it is not a budget. The ultimate in personal finance software for many years has been a program called Quicken. There are however many other types of personal finance software you can choose from.
It is possible for small companies and individual business people to cut costs without sacrificing quality. Keep these budgeting tips in mind when purchasing goods and services.
- Think of a budget as a useful tool — a written financial plan that helps you set goals and measure progress.
- Start by coming up with a sales revenue target. Make it your best estimate.
- Based on past experience, estimate your cost of goods sold (e.g., 70 percent of sales) and subtract it from the sales revenue to come up with your estimated gross margin.
- Forecast variable expenses (items such as travel and commissions that vary according to the level of sales) and fixed expenses (items like taxes and rent that stay the same, regardless of sales). Subtract these expenses from your gross margin to arrive at your estimated net income (before federal taxes).
- Break your annual budget into quarters and monitor your progress every three months to detect problems and make corrections.
- Save on marketing costs. Rather than outsource all your marketing to an agency, learn to complete some tasks in-house. Join marketing newsletters, purchase how-to guides, and read articles written especially for small businesses.
- Shop around for the best price. Combine Internet and "real world" shopping to save money. Before purchasing an item, research current sales and rebates. If you are purchasing items to resell, don't forget to use your tax ID.
Clearly, a business can operate without budgets, but it is clearly good business practice. With budgets, you will be more likely to achieve your business objectives, you will make more-reasoned decisions and you will have better control of your cash flow.
Budgets are frequently prepared to cover a 12-month period, (often the July - June tax year). Separate budgets covering shorter or longer periods may overlap, depending on the use to be made of the business planning process.
When looking around for business ideas, bear in mind that these could be based on any of the following approaches:
- A manufactured product where you buy materials or parts and make up the product(s) yourself.
- A distributed product where you buy product from a wholesaler/MLM, retailer, or manufacturer.
- A service which you provide.
We all have many demands on our time, but managing the financial aspects of our businesses is a responsibility that we need to take seriously. If this is not one of your strengths, then find someone to assist you with this process. It’s like any other skill, it takes time to understand the various aspects but it will happen. There’s no better time to take control of your business path than today!
