Budgeting
Copyright © Lau C Hun
To start a business, one must understand the importance of budgeting. Putting together a budget will require some thought and anticipation for the future. However, without any financial background on the business itself may make budgeting a guesswork, but one must understand that it has significant effect on a business.
We can separate the budget into two major categories, income and expenses. Where income means all their expenses that you receive for the products or services that you sell or provide, under the expenses you can actually split it to two categories, which is controllable or uncontrollable.
Many business owners thought that they can control all the expenses for the company. However, there are a few items which may not be easy to control as it is subject to changes time to time. Items such as utility cost, rental and other so-called fixed costs can, and do change, with the owner having no control.
Other expenses which are controllable may include items such as payroll, insurance and advertising that can be subjected to budget. These cost may be reduced should a business is facing some difficulty and vice versa. Another strategy may include laying off employees and cutting back on advertising. However, it is important that the business will continue to live by a budget to ensure or maintain profitability.
Regardless of what would happen in the future, it is always better to bite the financial bullet on employee wages and still provide good customer service to the remaining customers until business recover. You will quickly burn out if you are trying to do everything yourself, and the next question will be who is taking care of the customers, it will not take long until there are no more customers to care for.
You can have two ways to actually budget your business money by either in dollar amount and/or percentage of income. Most of the businesses will normally budget their controllable expenses by the dollar and non-controllable by percentage of income. Obviously, we should be looking at how to bring money into the business rather than wasting time in this area. How much we spend on controllable expenses will be in direct relation to income.
For example, a company earning $30,000 a month in income has budgeted five percent for payroll, providing $1,500 for payroll. If the income level rises to $60,000 the budgeted payroll percent does not change but the dollars available for payroll climbs to $3,000. With an obvious increase in business to create the additional income, the owner will probably need the extra help to take care of business.
Many other items in the business may fall into payroll account, these includes worker’s compensation charges, Social Security tax paid by the employer and paid vacation time or other perks determined by the employer. Although it may be difficult to establish a budget for a new business, but setting up budget remain one of the most important steps in building a new business.
About the Author:
—————————————————————–
Helping Everyone To Succeed In Life, Love and Finances
Personal Development For Home Based Business
—————————————————————–
Note: You may re-print the article in its entirety which includes the author resource box.
One Response to “Budgeting”
Got something to say?
This is a great topic to share here. Budgeting is key financial process in any business.
To generate a meaningful budget for the business, we need to have an understanding of the nature of the business/operation and also the general economy environment, etc.
For example, other than controllable or non-controllable expenses, we can also categorised expenses into variable and fixed expenses too.
Variable expense is expenditure that will increase or decrease proportionate directly to production or sales for instance, direct materials, direct labor, sales commission, etc.
Fixed expense is expenditure that will incurred whether there will be sales or services income generated from the business or not i.e. there is no direct relationship between the sales/income with the fixed expenses such as monthly rental, salary, office utility such as electricity, etc.