What is Budgeting?
Budgeting is strategic planning on how you intend to spend your money. For business owners, budgeting is about managing your finances to ensure profit and stability within your business.
Why is it Important?
- A powerful budget plan can help provide a framework for your finances within your business.
- Understanding how much money is coming in and how much money is going out can help avoid unnecessary spending so that your business can run its daily operations.
- Investments are key to business growth, whether it's new equipment, marketing, supplies, or new employees. Making sure that you have set aside some cash for future investments can help your business grow.
Types of Budgeting
Jumping into a new budgeting plan can be a bit scary. Here are some existing plans that can help build a framework for your budget:
Operating Budget
- This budgeting strategy focuses on making sure that you have the right amount of cash on hand to cover day-to-day expenses over a specific period, usually a month or a quarter. You will need to consider your expected income and expenses. This includes rent, utilities, supplies, employee salaries, etc.
Cash Flow Budget
- Cash flow budgets focus on tracking cash inflow and outflow over a specific period, which can be short-term or long-term. This budget will help ensure that your business will meet its bills and other financial needs. Essentially, you are avoiding any sort of shortage of cash.
Capital Budget
- Capital budgets focus on long-term investments. As the name suggests, if your company is focused on acquiring new assets like equipment or buildings, then building a capital budget may be what you are looking for. This involves allocating income to fund these long-term investments; loans or financing options may also be at play to acquire your new assets.
Sales Budget
- Sales budgets are financial plans that estimate a business’s total revenue over a specific period. Typically, this period ranges from a month to a quarter or a year. A sales budget looks at predicted sales volumes to help a business plan for revenue by allocating resources for better sales performance.
Tools
Necessary tools are always needed with every great plan. Budgeting is no different, thankfully, there is one software online that we can’t recommend enough. QuickBooks Online (QBO)!
QuickBooks is a great tool that can help any business organize and plan out their finances. Updated QBO subscriptions offer the ability to create a budget and compare it to actual income and expenses for a given period.
Tips to get started
Still stuck on where to start? Here are a few tips to get your budgeting journey started:
Business Goals
Understand what your current financial goals are right now. Are you aiming to make sure that operations are running as needed daily? Or is your business looking to reduce costs in certain areas?
Review Past Statements
Look at your previous financial statements to see any patterns for spending habits. Has your company grown from these habits, or have there been times when money could have been spent more wisely?
Plan an Emergency Fund
The future is full of surprises, both good and bad. If your business happens to run into a huge financial roadblock, having a safety net, like an emergency fund, can help reduce stress while your business is looking to get back on its feet.
Expert Guidance
Having all the tools is great, but knowing how to use them efficiently makes all the difference. For those looking for a little extra guidance, contact our team today to speak to our experts on how you can execute the right budget plan for your business today!