Budgeting is essential to every company regardless of size. An effective budget helps with planning and is essential for reaching objectives and goals while preparing for difficult or unexpected financial situations. Here are 5 tips for creating an effective budget:
· Budget should be for a specified period- The budget most often is based on the company’s fiscal year and broken down into monthly budgets. When creating the budget, consider the timing when both income and expenses will occur.
· Don’t try to budget to the penny- Accurately predicting actual results is not the objective, it's about providing your company guidance for coarse direction.
· Forecast your income and expenses- Review your current and historical financial data and project your income and expenses for a specified timeframe. Income should include payments received from sales, interest, accounts receivable and other sources. For expenses, all expenditures should be included, such as payroll, materials, note payables, utilities and any other expenditure.
· Run budget comparison reports- This is often referred to as a “variance report." Comparing your budget with actual amounts earned or the expenses you incur will enable you to determine the corrections needed to grow your business.
· Create profit and cash flow targets- Every budget should include profits and cash flow targets, because they are both bottom line measures that require different functions to control and manage them. Every year companies with very attractive profits go out of business for lack of cash.
Follow these five budgeting tips to create an effective budget for your business. Use your budget as a guide, and make corrections as needed to stay the course.
Please tell us what you need to know! We welcome all suggestions for articles, interviews, or whatever else you might like to see in the next issue of Financial Matters.
· Budget should be for a specified period- The budget most often is based on the company’s fiscal year and broken down into monthly budgets. When creating the budget, consider the timing when both income and expenses will occur.
· Don’t try to budget to the penny- Accurately predicting actual results is not the objective, it's about providing your company guidance for coarse direction.
· Forecast your income and expenses- Review your current and historical financial data and project your income and expenses for a specified timeframe. Income should include payments received from sales, interest, accounts receivable and other sources. For expenses, all expenditures should be included, such as payroll, materials, note payables, utilities and any other expenditure.
· Run budget comparison reports- This is often referred to as a “variance report." Comparing your budget with actual amounts earned or the expenses you incur will enable you to determine the corrections needed to grow your business.
· Create profit and cash flow targets- Every budget should include profits and cash flow targets, because they are both bottom line measures that require different functions to control and manage them. Every year companies with very attractive profits go out of business for lack of cash.
Follow these five budgeting tips to create an effective budget for your business. Use your budget as a guide, and make corrections as needed to stay the course.
Please tell us what you need to know! We welcome all suggestions for articles, interviews, or whatever else you might like to see in the next issue of Financial Matters.
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