Categories
Small Business Accounting

Different Types of Business Budgeting

A budget is a crucial ingredient for the establishment of any organisation. Additionally an organization’s financial as well as operational goals depends on the budgeting of business. If elaborated, growth of resources, profit line of business and infrastructural areas totally depend on the budgeting of a business.

If we think to establish a company,then budgeting plays a vital role because good budget can make fly you high while improper budget can create light risks. Also once your business is established, budgeting becomes a regular task that  can be done normally on a quarterly and/or annual basis.

The budgeting of business depends upon the company’s VARIABLE & FIXED pay and on the basis of this, funds are allocated. Different companies have different terms used for budgeting purposes such as cash flow, etc.

The first step is to set up a plan for the up-coming year on a month-to-month basis. Starting with the first month, establish specific budgeted levels particularly for each category of the budget. The sales numbers will be critical and important asset, since it will be used to check gross profit margin and further help in determining operating expenses, as well as the accounts receivable amounts and inventory areas that need to be improved in order to enhance business growth at the next level.

DIFFERENT TYPES OF BUDGETS:

Every business can follow these different types of budgets:

  1. MASTER BUDGET: A master budget is an aggregate of a company’s individual budgets which is specially designed to present a complete picture of its financial activity and health areas of a company. The master budget combines factors such as  sales, operating expenses, assets, and income streams to allow companies to look for the  establishment of goals and evaluate their overall performance accordingly. It also looks for  the individual cost centers within the organization. Master budgets are often used in larger companies to keep all individual managers aligned about business management.
  1. OPERATING BUDGET: It is a forecast and detail analysis of projected income of the company and overall expenses over the course of a set time frame. To create an accurate picture of the business, operating budgets must aligned for different factors such as sales overview, production management, labour costs for resources, materials costs of the product, overhead count, total manufacturing costs, and administrative expenses. Operating budgets are basically created on a weekly, monthly, or yearly basis. A manager might compare these reports month after month to see if a company is growing on good phase or the set budget needs to be modified.
  1. CASH FLOW BUDGET: It is a means of projecting how and when cash comes in and flows out of a business within a specified time period. It can be useful in helping a company determining the profit areas of business and regulate the growth of company at the next level.
  1. FINANCIAL BUDGET: It deals with all the transactions in terms of assets and liabilities of particular project within the company.

The benefits of budgeting can be elaborate as the best source in success of your business.It enables the businessmen to regulate the cash flow,reducing the expenditure and hence improving the overcome inputs of business.

Categories
Business Budgeting

What is Business Budgeting, why every business needs one?

You may have heard it many a times to earn money, you need to invest some. And, when your business is in the early start-up phase, there would be many initial costs that oblige business owners to spend ahead of earning payments. So, it is imperative for a business owner to create a budget because it boosts financial capacity so they can afford the things needed to grow.

A business budget outlines a financial blueprint for the future related to the dividends and costs of a business. But, a budget is far greater than just financial numbers. Why do businesses need budgeting? A business that outlines short and long-term goals by establishing a thorough plan can build a road map for a successful business and open opportunities to expand. Similar to a household, a business has a few debt obligations and expenses. For example the inability to meet payroll, means employees will look for another job. A venture which is unaware of the cash flow is in no position to expand, seize investment opportunities or commit long term to suppliers or clients. Often in a startup, there is limited information to create an intelligent budget for a year. Business owners can start with pursuing monthly budgets and further moving to quarters. Once finances have been established business owners can pursue by building intelligent yearly budgets.

5 key steps for small business budgeting.

Step 1: Keep Score of Income from all sources

The top priority facet of a wholesome business budget is to comprehend the amount of money a business brings in monthly.

Small start-up owners can do themselves by analyzing the sales figures and then adding other income sources used to run the business. Established business owners can use technology tools for small business budgeting.

Step 2: Analyze the Fixed Costs.

There exist some expenses that are constant each month, such fixed costs should be determined.

Such fixed costs are easily calculated by deciding your bank statements or ledger.

Step 3: Take account of variable expenses

The facets which don’t have a fixed price falls into the category of variable expenses. The purchase of variable cost items can be scaled up or down subjected to a state of business (profit). The monthly business profit is calculated by the earnings business owner is left after paying all the expenses.

Step 4: Predict one-time spends

The biggest perk of creating small business budgeting is the ability to determine one-time purchases in a refined way.

Step 5: Combine it all

The first four steps of the post feature the aspects of a decent business budget, so the last step is to combine it all together. Business owners can use the below mentioned handy checklist with special examples.

Sources of monthly income

  • Hourly earning
  • Savings interest
  • Investment Income
  • Earnings related to product sale

Fixed Costs

  • Rent
  • Utilities
  • Salary of employees
  • Insurance
  • Internet

Variable Costs

  • Advertising
  • Travelling expenses
  • Raw material
  • Printing services

One-Time Expenses

  • Office Supplies
  • Software
  • Computer
  • Furniture

To ease small business budgeting there is a multitude of tools to streamline financial management processes.