Every business owner knows that they need to have a budget in place for their company. It isn’t so difficult to establish a basic overview of your money situation with a budget, but it’s still important to try and go that little further to come up with a more detailed financial plan. After all, the better your budget then, the better your financial decision making will be.
However, those entrepreneurs who don’t have too many math or money smarts can struggle to come up with the kind of budget that their company needs. It doesn’t have to be too tricky, however. Here are some very simple budgeting hacks that will make it a lot easier for you and your company.
Know Why You Need The Budget
First of all, it’s a good idea to get to know the reasons why you need a budget. So to do this, you need to understand what a budget really is. There is no point in allocating every single cent that you earn in the budget - it’s more important that it gives you a good overview and can help you with your big decision making. Think of your budget as an outline. Similar to when you write a research paper, your budget gives the highlights you need to hit to make sure you’re on target. For more accurate accounting, you will use your key three financial statements—your balance sheet, your income statement, and your cash flow statement. You can easily put those together using an accounting software where you automate most of the work. It should also be a tool for showing you in which areas of your business you could lower the expenditure.
Focus On The Key Areas In Your Organization
Most companies need to pump the majority of their capital into some key areas and departments. These include human capital, legal, marketing, and IT and tech. Generally speaking, it’s a good idea to create individual budgets for these critical areas. If you get stuck on trying to make a budget for an area that isn’t your specialty, you could always outsource this task or reach out to experts for advice. Companies like Refresh Technologies could help you with your IT budget. You’ll also find marketing and legal firms that can give you a helping hand with the others.
Keep It Real
You need to keep it real with your budget. By that, I mean that you need to be realistic with it. If you are only filling it with expected and forecasted figures, then there is a good chance that it could end up littered with errors. Moreover, this could be very problematic when you need to make some crucial financial decisions at a later date. The best way to do it is to create both actual and forecasted figures. Your forecasted amounts will be your goals, while your actuals will record what you’ve actually brought in or spent. You would then create a column showing the difference between these amounts called a variance. This is also helpful as you plan for your business and keep track of how the business is performing based on your expectations. If you are interested in learning how to accurately forecast your businesses finances, enroll in my course, “How to Create A Lean Business Plan,” where I walk you through the process and provide templates for the top three financial statements you need.
Understand All The Current Risks
When you are drafting your budget, you need to be very aware of all the current risks that are affecting your budget. These risks shouldn’t just be financial ones. After all, any issue or problem that you need to overcome could have a direct effect on your company’s value. One of the most important tasks you will complete in your business is strategic management. As you go through this process, you will scan your environment for potential opportunities and threats. Doing this consistently will help you take advantage of and prepare for changes that may occur.
Overestimate Your Expenses
Part of your business’s budget will cover all the expenses that you expect to encounter. Ideally, it’s always best to overestimate how many you will have when you’re first starting your business. That way, you can put more than enough money to one side to cover them. As your business grows and you have a better understanding of your business, you should have a more accurate understanding of your business expenses. Remember, the key to your business financial health is controlling your expenses and lowering them whenever possible (as long as those actions do not affect efficiency or effectiveness).
As you can see, budgeting for your company shouldn’t be too difficult. Not now you’ve got these great tips!
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