Read more about Business
There are lots of other reasons why you ought to know how to budget. One is that it lets you manage the resources available to you. Another is that you’re able to steer the business to a better state, financially speaking. If you’re still not sure how to go about drawing up a business budget, these 7 steps should help in that regard:
Determine Your Financial Goals
Before plunging into the nitty-gritty of budgeting, it’s important to establish clear financial objectives for your business. Are you aiming to increase revenue, expand into new markets, reduce costs, or improve profitability? When you define your goals upfront, you’ll have a better understanding of what your budget needs to accomplish.Gather Financial Data
Your financial data are the building blocks of your budget. They give you a fair idea of what values you should be computing in your budget—or at least close approximations to them. You can collect this data from such sources as historical financial statements, sales forecasts, expense reports, and any other pertinent information about your company’s income and expenses. While planning your budget, consider external factors such as market trends, economic conditions, and industry benchmarks that may affect the figures you use.Pinpoint Revenue Sources
Your budget for any period (whether it’s a month, quarter, year, or a one-time project) is made up of two things, at the very least: your projected revenues and expected expenditure for that period. To estimate your revenues, you’ll have to find out where they are coming from. These sources may include sales of products or services, investments, grants, or any other income streams. Be realistic in your revenue projections; you need to take into account factors such as seasonality, market demand, and potential fluctuations in sales.Sign up for the Connect Nigeria daily newsletter
Estimate Expenses
The next thing you’ll want to do is estimate your expenses. Start by categorizing your expenses into fixed costs (e.g., rent, salaries, utilities) and variable costs (e.g., materials, marketing, travel). Then use historical data and industry benchmarks to make educated guesses about future expenses. However, be prepared to adjust your estimates as needed based on changing circumstances.Create a Cash Flow Forecast
Anyone thinking about how to prepare a business budget needs to learn to create a cash flow forecast. Cash flow is the lifeblood of any business, so it’s essential to forecast your cash inflows and outflows accurately. A cash flow forecast projects how much money will be coming in and going out of your business over a specific period, typically every month. This record will help you anticipate any cash shortages or surpluses and make informed decisions to manage your company’s liquidity.Set Budget Targets
With your revenue sources, expenses, and cash flow forecast in hand, you can now set budget targets for each category. Come up with realistic targets based on your financial goals; be sure to take into account factors like your growth objectives, cost containment measures, and risk management strategies. Also, be flexible and willing to adjust your targets as needed to adapt to changing market conditions.Track Your Budget’s Performance
Creating a budget is only the first step; the key to success lies in actively monitoring and reviewing your budget performance regularly. Compare actual financial results to your budgeted amounts, identify any variances, and investigate the underlying reasons for discrepancies. Use this information to make informed decisions, adjust your budget as necessary, and course-correct to stay on track toward your financial goals.Register to attend the CN Business Mixer
Final Words
Your business budget is a vital part of your operations as a business owner. It sets the financial tone for your spending and gives you some ideas as to what your revenues could be. If you follow the step-by-step guidelines we’ve shared here, you’ll know how to prepare a business budget that truly works.Featured Image Source: All Business
Got a suggestion? Contact us: editor@connectnigeria.com
You might also like:
- How To Market Your T-shirt Business Offline
- Consumer Technology: Smartphone Penetration in Nigeria
- 10 Tips for Starting a Dropshipping Business in Nigeria
- Tips for Managing Your Business’s Financial Records
