Running a business without a budget is like trying to drive a car without petrol. Even the smallest business needs a budget.
To start developing a budget, you need to review your income and expenses. Be sure to look at past records, such as financial statements and tax returns.
If you don’t have any previous records to work from, look at a similar type of business and use its budget as a model for your own. Once you have all of your information, list all expenses for three to six months or even the entire year if your business is seasonal.
Divide your expenses into relevant categories, such as debt, human resources and overhead. See if there are any spending patterns in each category. Also, remember to save money for emergencies or economic downturns. Be sure to allocate money for repairs, maintenance or any big investments.
Then use the figures and spending trends to project amounts for each area. Include annual totals, adjusting them for changes that you foresee to your business or the economy. You may want to create benchmarks for shorter, easily managed periods, such as one or two weeks. Consider periodically reviewing the numbers and adjust them if your business conditions change.
Now comes the hard part: Sticking to your budget. Share it with your business advisors and employees to get their support. Remember your budget may have to be revised periodically depending on revenues generated, company direction and market opportunities. However, careful budgeting will prevent large unforeseen lapses in your cashflow.