Budgeting is essential for operating a successful business. While learning the ins and outs of creating a working budget may seem intimidating, it doesn't have to be. Budgets are simply informed estimates about how much your organization will bring in through sales and other activities, and how much you expect to spend during a predetermined period. Most companies prepare annual budgets, but quarterly reports can be valuable when your business is growing and expanding.
Budget reports provide a working guide that informs spending and investing decisions for a specific period in the future.
An informed business budget considers past spending habits and revenue-generating patterns to project future profit or loss. Business leaders increase or reduce line items based on economic conditions and market trends that mean costs make go up or sales volume may change during the coming year. Armed with this information, business owners can explore saving opportunities to fund growth or establish capital reserve accounts.
Budget reports allow business leaders to monitor progress and prioritize financial goals when setting prices, replenishing inventory, creating marketing campaigns, and allocating funds for new equipment purchases.
Economic fluctuations and market trends dramatically impact how much an organization must spend and how much revenue can realistically be generated. Modifying the working budget can help you maximize revenue potential based on real-world conditions, at a predefined point in time. This flexibility is essential for supporting strong financial health.
When it comes to managing money wisely, a budget gives a clear, concise view of where a business has been, and what it will look like in the future. Budget reports are the perfect tool to inform resource allocation.
Most company decision-makers spend a good part of their day involved in activities focused on money matters. Right now, managing money probably consumes more of your time than you want it to. Creating a company budget frees you up to spend more time growing your business. Why? Because when you follow a thoughtfully created roadmap, you don't have to constantly check your bank account balances or shift funds from one account to another to cover recurring expenses or unplanned purchases.
So, let's look at what items a typical business budget includes. The Big Categories are income-generating items and expenditures. We'll start with revenue.
Income items include estimated earnings based on last year's income, or market trends and expectations if you manage a start-up without a track record. You might include:
Expense items are unique to each business, but almost all business entities have some general categories in common, like the ones below.
Utilities, mortgage, and lease payments are examples of fixed costs. Costs may increase year-over-year so, it is wise to contact service providers for assistance estimating future costs.
Variable costs are usually tied to production or sales volume. They are costs of goods sales items that may include inventory, manufacturing costs, travel expenses, and shipping costs. A comprehensive budget helps an organization control cost of sales more effectively.
The importance of budgeting reports cannot be overstated. Business budgets help companies manage their money wisely. They also: