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What Is a Business Budget?
A business budget is a comprehensive budget that seeks to establish the most practical appropriation based on a company’s needs and financial objectives. It encompasses basic variables such as a business or company’s income, expenses and other relevant financial data.
According to an article by Zoho, around 61% of small businesses do not or have not created a formal budget. The same article also reveals that there are six types of budgets. These are master budget, operating budget, cash budget, financial budget, labor budget and static budget.
Sample Business Costs
Running a business can entail multiple costs or expenses. Of course, it would depend on the size of the business and the nature of its operations. A startup or small business’ expenses cannot be compared with that of a big or established conglomerate. The following examples describe just some of these basic and common business expenses.
Elements of a Business Budget
A basic budget ought to contain a couple of key elements. It is important to break down each element specifically in your budget worksheet. The following examples offer a thorough discussion and analysis of some of the basic elements in a business budget.
How to Create a Business Budget
To create a business budget, you need to have a broad understanding of your business and organizational needs. If you are looking for reliable sample templates, you can easily download any ready-made budget template from the selection above. Choose one that best suits your needs and follow the step-by-step guide below.
Step 1: Format and Objectives
Before filling in any amount or variable, you need to establish a format first. Most formats are quite similar, but it can vary depending on the needs of the company. Fortunately, you don’t need to start from scratch with the wide collection of available templates. Using a predesigned template can save you a lot of time and effort. In addition to the format of the worksheet or document, you may also indicate or state a couple of financial objectives or budgetary goals. For instance, if your company decides to cut costs for the fiscal year, then that would have a direct effect on your business budget plan.
Step 2: Income
The next step is identifying and enumerating your business income. As discussed in the previous section, revenue or income must always be included in a business budget. You need to determine all your sources of income. It is best to specify each. Whether income is in the form of profit, sales, dividends or capital gains, these must all be listed down accordingly. Having a clear and firm grasp of how much money is coming in is crucial when deciding and preparing a budget. Basically, it helps to know how much you are earning so you can make better and more sound financial decisions.
Step 3: Expenses
After identifying your sources of income, the next step is coming up with a detailed breakdown of company expenses. Income and expenses must always go together. These two factors are basic in any formal budget. Entries or items listed for this section will vary, of course, on a case-to-case basis. But as mentioned in earlier sections above, there are some common and universal expenses that apply to most businesses, if not all. Examples of business expenses include employee costs, supplier payments, marketing costs, and operating costs. In your business budget, be sure to indicate each amount for every month.
Step 4: Analysis
Once you have filled in all the values for both revenue and cost, the next step is conducting an analysis of the values you presented. Just because you completed your table or spreadsheet, the work does not necessarily end there. You need to come up with a summary or report based on the figures or number in order to make sense of it. What do the numbers mean for the company? Are the values indicative of something positive or negative? What must be done moving forward based on the overall assessment of the balance sheet? Again, it helps to go back to your business budget objectives. Conducting an analysis or evaluation of your budget can help shape your next financial goals or plans. It can also help you identify areas for improvement or growth.
What are the 3 types of budgets?
According to ICICI, the three main types of budgets are a balanced budget, surplus budget and a deficit budget.
How do you create a business budget?
To create a business budget, you need a deep understanding of not just your business’ income and expenses, but also your company’s needs. Refer to the previous section for a more detailed guide on how to create a business budget.
Why is the budget important in business?
Learning how to budget is crucial in business because it guides your financial decisions and enables you to make sound financial projections as well. If you have a clear picture of your earnings and expenses, you will be able to determine if you can afford something or not.
A business budget is not merely a spreadsheet or balance sheet full of numbers. It is supposed to be a tool that will help you weigh your company’s financial decisions and plans. Browse the wide collection of sample templates above to get started on your own budget now!