Budget is a tool for both planning and control. It is a plan when you start a small business; when you start operating your business, budget serves as a control device to help you manage the plan. When people think about budgeting, they usually think about restricting on spending money and cutting costs. That not necessary true, because budgeting is actually about planning on spending the money you have and at the same time knowing where it is going.
Why is budgeting so important?
Because it can help Small Business owner like you to determine if they have enough money to fund operations and expand the business. Without Budgeting is just like "Closing your eyes and walking on the freeway", it is so dangerous not knowing where you are spending the money, because you can easily overspend your money and that may lead to debts. When you are starting a new Small Business, Budgeting can also help you build your Business Plan, it gives you a good sense on the expense and costings.
1. Analyzing your Income
You first need to determine how much income you have. Look at your monthly income, how much are you earning on average monthly? Make sure you include other sources of income as well, such as interest, salaries and money from other places. It is crucial to estimate the income as accurately as possible
2. Analyzing your Expenses
What are your monthly expenses? Car payment, rent, insurance, debt, taxes, utilities, groceries and entertainment…etc ? Try to evaluate the money you spend and keep track of it by monthly bases. After understanding what your spending pattern is like, group your expenses into two different categories.
Fixed expenses are the kind of operating costs that charges constantly and do not change for month to month like rent, salary, utilities and loan…etc.
Discretionary Expense - Discretionary expense are the things that are unnecessary to purchase like vacation, gas, clothes, food and entertainment …etc
After dividing them into these two groups, make a list of all the necessary things you will NEED to pay and add up all the amounts.
3. Net income/ Net loss
The third step is easy, once you have gather all the information needed, you can simply subtract the expenses from the income to see if you get a positive or negative number. It is good to have a positive number, because that means you are spending less than what you have. If you have a negative number, you should start adjusting your spending/ saving as soon as possible. Think about reducing expenditures and cut down some unnecessary costs, such as: purchasing less expensive advertisment, hiring fewer employees , and purchasing unnecessary stuff…etc.
Tips - Budgeting 101
- Do not investing money in new requirements or other assets if you have not create a BUDGET
- The best way to understand your spending pattern is to look back at the past purchasing records.
- Always look to Cut Costs ( Unnecessary costs), look for new suppliers, look at more cheaper options to save money
- Make a plan to review your budget, and check often to make sure you are staying within the plan.
It is vital to make sure your business finance is on the right track, and budgeting is the most effective financial management tool available. It is so important to know where you are spending the money and how much you are spending, because it keeps your company away from debts and help reach the financial goals.
No comments:
Post a Comment