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Budgeting
A budget outlines your organization’s financial and operational goals in order to create a business plan.
Budgeting is an important asset to help you measure and analyze your business’s performance. It can serve as a guide when deciding on aspects of your business such as: hiring new staff, cutting expenses, increasing marketing, etc.
When developing a budget, if your business is:
0-1 Year
You may refer to your financial forecast data for budget input
1+ Years
You may refer to data from previous years, noting where “you exceeded or fell short of last year’s budget”
Steps to develop a budget for your business:
Step 1
Write down assumptions about your business, such as what products/ services are/will be sold, their prices and volumes, the critical drivers for expenses. For example, number of staffs and locations, various marketing initiatives, etc.
Step 2
Once assumptions are listed, separate your budget in 3 parts:
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Fixed costs: costs charged such as wages, rent, insurance, etc.
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Semi-fixed costs: costs that can be scaled up or down depending on the state of your business, “using your monthly profit.” Therefore, if your business is doing better than expected, semi-fixed costs can be increased.
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Variable costs: costs that are directly related to the production of a product like labor and materials, for example computers.
Step 3
Put your budget together (example of items you may include):
TIP
If you have an established business, take into consideration both income statement and cash flow statement. If you own a new business, focus solely on cash flow.
Hourly earning
Product sales
Investment income
Loans
Savings
Other
Rent/mortgage
Utilities
Government & bank fees
Salaries
Internet
Insurance
Advertising
Commissions
Other marketing costs
Travel & events
Printing services
Raw materials
Income Sources
Fixed Costs
Semi-Fixed Costs
Variable Costs
Computers
Furniture
Software
Office supplies