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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:
You may refer to your financial forecast data for budget input
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:
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.
Once assumptions are listed, separate your budget in 3 parts:
Fixed costs: costs charged such as wages, rent, insurance, etc.
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.
Variable costs: costs that are directly related to the production of a product like labor and materials, for example computers.
Put your budget together (example of items you may include):
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.
Government & bank fees
Other marketing costs
Travel & events