Budgeting helps you pinpoint any difficulties before they occur, measure performance, and of course stay in control of your expenditure. It's worth noting that a budget is a planned outcome of the future, so differs from a business forecast, which is a prediction. Here's what you need to know about making your budget:
Your budget is made up of three basic elements: projected cashflow, costs and revenues. If you haven't worked out your revenue forecast yet, check our guide on it - likewise for cashflow. Costs include fixed, variable and one-off capital costs. Break fixed down into type: rent, equipment, salaries (your own and any others), advertising, expenses, and so on.
12-month budgets work best when they've been drawn up on a month-by-month basis. This helps you predict specific periods of difficulty, and when you might have a bit of extra cash to splash. Your budget can start splitting into smaller budgets: marketing budget, sales budget, and so on - although still use an overall budget. Spreadsheets are by far the easiest way to create and revise budgets.
Once you've made your first draft, find ways to reduce costs. Figure out any periods where cashflow might be a bit sticky and work out how to avoid problems. Consult an accountant or anyone you know who has financial experience. Refer to your budget frequently - at least monthly - and measure your progress. Revise it if and as often as necessary. Many successful businesses use a rolling budget that always plans the next 12 months.
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