05/12/2013
How to budget for your business
Creating and sticking to a budget can be a challenging task. In addition the pressure to do more with less is being felt in most organizations. Here are some pointers to remember when setting up a budget for your company.
“The purpose of a budget is to draw up a plan of future activities of the company expressed in financial or monetary terms,” says finance specialist, Carel Spies.
A budget must be presented in the format of the official financial statements of a company such as the income statement and balance sheet.
“An organizational budget is a proposed plan of how the business is going to fair in the coming financial year. Once the budget is accepted by the shareholder or owners of the business it becomes a target for future financial performance.”
Elements such as sales, assets, equity and liabilities need to be taken into account when compiling the budget.
One of the biggest mistakes is a lack of forethought and planning.
Other problems can arise from inaccurate or unrealistic assumptions about costs or profits. When the business experiences a lower profit margin than expected the company’s cash flow requirements come under pressure.
In any scenario the principles of budgeting remain the same. “When you budget for an event you have to plan all the activities carefully and ensure your assumptions regarding quantities and prices are well researched and will make financial sense when compared to actual expenses once the event happens.”
“If an event is expected to bring in an income or sales then one must assess the corresponding costs and expenses to ascertain the feasibility of the initiative.”
Overspending is an error common to budgeting. “It is important to compare your actual expenditure carefully against your proposed budget …to avoid overspending.”
Calculating your actual expense before time allows you to explore more suitable options.
Creating an accurate budget requires spending as much as 80% of your time on preparation and planning.
“Make sure the assumptions are well thought through and researched.”
A manager or business owner stands the most to gain or lose from the budgeting process. Therefore management needs to possess an intimate knowledge of the budget.
By Cindy Payle - Portal Publishing