Tips for Your Business Budget
Having a solid understanding of the finances of your business is critical for managing profitability, creating growth and success. The foundation of this understanding comes from developing budgets that are realistic and flexible to meet the changing landscape of the industry and economy in which your business operates. Thriving Small Business outlines ten steps to creating a solid small business budget:
- Strategic Planning – how the business plans to achieve its mission.
- Business Goals – goals break down the steps to implementing the strategic plan and the budget is tied to the goals to fund the achievement of the goals.
- Revenue Projections – based on past financial performance with additions for projected growth resulting from the business goals being achieved.
- Fixed Cost Projections – projections using historical data plus increases for inflation or additions of staff, equipment, workspace, etc.
- Variable Cost Projections – these costs include commissions, short-term supply additions, overtime and other costs that change month-to-month.
- Annual Goal Expenses – each strategic goal needs a budget which includes costs related to its development and operation.
- Target Profit Margin – profit includes returns for owners and investors as well as capital for reinvestment in the business.
- Approval and Accountability – the budget must include a process for monthly review to ensure costs are in line with projections and maintain controls to prevent loss.
- Budget Review – also multiple individuals will track progress towards completing goals so adjustments to the plan and projections can be made as needed.
- Dealing with Variances – changes in expenditures should raise questions in order to determine the need to change the budget or change operating procedures to keep costs in line.
- Solid budgeting processes help advance an organization while the lack of proper development or monitoring of the budget can lead to unwanted surprises at the end of a fiscal year and financial problems for an organization.
Mars Bank’s commercial team can help you work towards reaching your financial goals, schedule an appointment today to talk to one of our knowledgable bankers.