A budget is a statement that estimates the income and expenses expected from the future plans and objectives of a business or project. It documents, in financial form, what the owners or managers expect in an upcoming period, in line with the goals for the business or project. A budget is an essential part of your business plan.
If you’re starting your entrepreneurial journey or your going concern is embarking on a new project, an understanding of the building blocks of starting and growing a business will help you on your way. Basically, you need a budget to help you have a firm grip on your finances. What should you focus on when planning the budget that will help you to kick start and maintain control of your business?
The issues that a Small Business Owner needs to address in preparing a budget for a business or project include but are not limited to the following: How much money will be needed? What things will be needed to run the business or execute the project? What will be the expense and sales forecast? How do these stack and add up?
1. Amount Needed, Where It Will Come From: A key question in launching a new business or project is the amount of money to be spent. While each business may be different, businesses have a common denominator to the extent that you have to spend money on them before you can make money from them. You have to speculate before you can accumulate!
To begin with, you have to decide how much you are able and willing to invest in the new enterprise, and the time line of your expenditure. This will enable you to stay on course and know when and if you will need to correct your course. Deciding on the amount needed also helps you to determine where the money will come from. This could be personal savings, equity from other investors, loans that will be repaid with interest, etc.
2. Essential Items: You have to think about the things that you need to run the business or deliver the project. These will vary, depending on the nature of the business or project. They could range from equipment and machinery, through raw material and consumables, to licences and permits. These should also include the human resources that you need to engage. The bottom line is that the items are essential for the business or project to survive and thrive. More important, the items have cost implications and a complete budget must include the cost of acquiring and using them.
3. Expense And Sales Forecast: This must be informed by results from your market research, knowledge of the competition and market trends. What are the planned expenses and projected income? How much loss is the business or project likely to carry and for how long? When will the business or project start making money or profits? What is the best (or worst) case scenario for the enterprise being embarked on? Answers to these questions provide pointers to the road ahead.
4. Professional Assistance: On completion of the rough draft of the budget, it helps to seek a second opinion, especially from a professional. Get someone who should know to verify it. Ask a mentor or qualified accountant to look over what has been done. The idea is to double-check the work to ensure that everything adds up.
* Do you need help in preparing the budget for your start-up or new project? Contact us at https://smefinance.org/thesmelab.
** If you will like to compare notes with aspiring and practising Small Business Owners on this subject, you can do so by joining our official SME Finance Facebook Group at https://www.facebook.com/groups/smefinance/