Many business owners understand the importance of having a plan and financial roadmap for the future. Without one, how would you know if your operations are on track to meet expectations or in danger of failing short? Here’s a simple guide for setting up a business budget and financial projections so you can make the most informed business decisions and maximize your results.
What is a Business Budget?
A business budget is a plan for how you will spend the money your business either generates or borrows over a specified period — monthly, quarterly, or annually. It provides a roadmap for tracking revenue, expenses, and profits. Your budget is an excellent tool for deciding how you will use your money wisely.
The Purpose of Creating a Budget
Without a business budget, you may be operating your business blind, meaning you don’t know how much money you will need for startup or operational expenses. Your budget tells you things like:
- What your startup costs will entail
- How much you need to operate
- Your breakeven point
- How much staff you can afford to hire
- What prices you should be charging
- Whether you need to secure financing
Setting Up a Simple Business Budget
Whether you’re a startup or an established business, it’s helpful to have a budget on hand. Here are some of the steps for creating a simple business budget.
- Look at Your Revenue — List all your projected revenue sources for a specified period, taking into account any seasonal or other patterns.
- Subtract Fixed Costs — Subtract your fixed costs, which are costs that don’t fluctuate from month to month. These include things like rent, insurance, property taxes, and employee salaries.
- Subtract Variable Costs — Subtract your variable costs, which are fluctuating costs like hourly workers, utilities, and raw materials.
- Calculate Gross Profit — Your profit is what you have left after deducting your expenses from your revenue.
The Difference Between a Budget and Financial Projections
Budgeting and financial projections are often treated the same, but there are some differences. Your business budget reveals how you expect the business to perform over a specified period. Financial projections use real-life cost data and sales to forecast where things are indeed headed.
Both are important because you want to know if your budget isn’t lining up with actual numbers. By reviewing these items, you can get better at budgeting and fix minor problems before they become too troublesome.
Successfully Managing Your Business Budget
When it comes to achieving the best business results, there’s no substitute for a sound financial plan, which includes creating a business budget with financial projections. If you require additional capital or want to ensure adequate cash flow, you may wish to explore business financing options.
At CAB Capital, we recognize that there is no one-size-fits-all solution to funding your business. A bank loan may work fine, or something else could be a better option. With access to more than 150 products, we specialize in helping businesses find the funds and terms that meet their specific needs. Contact us today for more information.