Learn how to build your business budget in 7 steps – WAU
Business Budget is a document that contains information about all the expenses and revenues of the company in a given period – usually one year. The purpose of the corporate budget is to assist in defining the financial direction of the enterprise, enabling solid planning for the year to come.
Entrepreneurship is one of the most challenging decisions in an individual’s life. That’s because managing a company and making it grow in a healthy way requires many skills and strategies.
In this post we will talk better about the business budget, an essential tool for the success of your business.
Whatever the size of your company or the stage of development it is in, there is no way to operate without a budget. After all, controlling expenses and optimizing resources is a common goal for any enterprise.
Therefore, we decided to bring to the blog a complete content on the topic. We will present a simple and efficient step by step for you to set up your business budget and be able to follow it to the letter.
Are you curious and want to learn? So, read on!
What is a business budget?
A business budget is a document or tool that contains important information for running a business.
In other words, the document details all of the company’s expenses and revenues over a given period – usually one year.
For this, the corporate budget is not based only on past data, a critical analysis of the company’s situation, market prospects and business objectives is made.
How important is this tool?
When we analyze the concept, it is easy to understand its importance. If in our personal financial life, monitoring inputs and outputs is essential, imagine how relevant this is in a business context.
Conducting a company without knowing its investment spending, sales estimates, seasonality of products and the level of indebtedness is something that compromises its development and can even lead to bankruptcy.
In general, the corporate budget prepares the company for the challenges and opportunities of the future, helps to correct errors in the allocation of resources and, of course, contributes to the entrepreneur being able to cut expenses strategically.
So if you want to see your business growing, start investing in business budget right now. There are no magic formulas for success and, believe me, success is associated with your ability to manage and keep your business stable and operating within an ideal budget.
What are the steps to set up your business budget?
Now that you already know what a business budget is, as well as its importance in the process of growing your business, we will present a step by step to prepare this document.
Below, we have separated the 7 essential steps for the success of the budget definition process. So read on and stay tuned for the tips we have prepared for you!
1. Make a diagnosis of the business
The first step in setting up a good business budget is to carry out a general diagnosis of the company. After all, to project the future, you need to know your current reality, its limitations, problems and, of course, opportunities.
So it is advisable that you take the time to study your finances. Don’t just stick to the previous year. The ideal is to analyze at least the last 3 years.
The important thing about this phase is to gather as much relevant data and information about the company and make an assessment of how it has evolved. Check, for example:
- the average sales of previous years;
- the average profit achieved;
- taxation expenses;
- seasonal sales and products;
- possible ordinary expenses.
2. Establish the company’s goals and objectives
After carefully following the first step, you already have a greater understanding of your company. This is essential as it will help you to set the objectives and goals for the next period.
Knowing the level you intend to reach next year is important to outline strategies and stay motivated.
Goals are a major factor for the success of a business, but they need to be in accordance with the structure and resources available. So be very careful at this stage.
An important tip is to check your Business Plan, as it contains the general objectives of the company. With this, you will be able to set more coherent goals and will be able to decide the areas that will receive more investments or cut costs.
3. Choose the ideal tool
With all this data in hand, you can now start to structure your business budget. For that, it is necessary to choose the ideal tool.
It is important to note that this varies according to the level of maturity of your business. Which means that bigger and more developed companies need to have more robust resources.
Early stage companies, that is, small businesses and family members, do not usually hire a professional or software for this, as the entrepreneur himself does this work. In this case, it is possible to bet on the Income Statement for the Year (DRE) and on the budget spreadsheets.
If your business is already more advanced, it is interesting to invest in management software, as it, in addition to automating the control of expenses and revenues, simplifies and streamlines your day to day and decision making.
4. Pay attention to what should be in your budget
After choosing the ideal tool, it is time to gather and analyze all the data that it should contain in your business budget. This is a very important phase, since the more complete your budget, the greater the chances of you getting good results in the period. So, write down the essential points:
- projected cash flow;
- fixed assets;
- production costs;
5. List all your fixed and variable costs
This step is closely linked to the previous one and consists of recording your fixed and variable expenses. It is important to emphasize the importance of the entrepreneur to know these expenses accurately, as they can indicate problems and points to be rethought.
To help you with this task, we separate the main fixed and variable costs of a business. Follow.
- commercial point rental;
- employee salaries;
- telephone and internet costs;
- federal, state and municipal taxes;
- spending on website hosting;
- accounting Service;
- acquisition of raw material;
- consumption of water, gas and electricity;
- spending on printing and stationery;
- hiring freelancers;
- marketing and advertising expenses;
- transportation costs;
- commercial point reforms;
- participation in events for entrepreneurs.
6. Make a projection for the period
The penultimate step for the success of your budget is the assembly of a projection for the period. That is, based on all the data and information that you have gathered throughout this process, it will be necessary to set up a business projection.
In this document, it is important that you make an estimate of income and expenses, the provision of working capital, expenses with purchases of equipment and tools and the projection of business growth.
Try to create a calendar with the steps you intend to follow throughout the year. This will help you stick to the schedule and keep your spending from going over the limit.
7. Track the results
It must be made clear that it is not enough to follow all these steps. It is essential to monitor budget compliance throughout the year.
Monitoring is an essential phase for the success of your business, as it helps to identify failures before the problem becomes bigger and leads to bankruptcy.
It is, therefore, a preventive measure. In addition, this strategy allows you to identify opportunities more quickly, which favors your competitiveness.
What are the best tools to track your business budget?
As stated, monitoring the budget is as important as its correct structuring. This means that you need to adopt efficient methods to monitor and assess whether your planning is being carried out.
For that, nothing better than having the help of technology! There are several interesting tools that simplify this task and contribute to more effective control.
So, our tip is to use management software or a business budget spreadsheet. Management systems are complete tools, but require a higher initial investment. So, if you still don’t want to invest in it, you can have the help of spreadsheets by downloading a ready-made template or creating your own.
But, stay tuned! A good business budget spreadsheet needs to contain some essential fields or it will not be very useful for your goals otherwise.
If you decide to make your own model, our suggestion is to adopt an annual one, but divided into months. Divide this spreadsheet into entries and exits, list all the items that are related and, of course, be sure to create a cell to enter the balance of each one.
An interesting tip is to use colors to classify the values. Thus, the inputs can be signaled in green and the outputs in red. This makes it easier to view and interpret the spreadsheet.
As you can see, there is no excuse for not keeping up with your budget.Creating your own spreadsheet is a simple task and only requires a little skill in Excel!
Were you able to write down all of our tips? After reading all the information presented, we hope you are better prepared to set up and manage your business budget.
This is one of the greatest responsibilities of the entrepreneur and can dictate the direction of his business. So, get to work!
To help you further with this mission, we have separated some essential material for you! Read our step by step how to use Excel.