Preparing a Basic Budget

Are you in the process of preparing a basic budget for your brand new startup?

Do you want to know the steps that can help you put a solid budget plan into action?

The process of budgeting for small business owners isn’t limited to figuring out where to get the cash to meet next month’s payroll or BAS bill. Budgeting is the most powerful financial tool that is available to a small-business owner. Being a small business owner, when you maintain a good short and long term financial plan, you take control of your cash flow instead of having it control you.

Having a sound budget gives you the power to make your financial goals a reality. It can help you meet your strategic goals as well. But when you are preparing a budget, make sure you don’t map out a budget that you cannot meet. An effective budget includes both a short-range, week-to-week plan for at least a month and at most a calendar year. Budget provides you a plan only for the income statement and you should also cover balance sheet, this will enable you to consider all potential cash-flow needs for your startup.

The process of preparing a budget for your startup or company should be highly structured and follow a schedule, so that it is complete and ready for use before the next financial year begins.

Follow the steps below for setting up a realistic budget that will get you where you want to go and what you want to achieve.

1. Identify Your Goals

The first step in creating a budget is identifying the goals you have for your business. Think through what you want to accomplish with your business and how much profit you want to make.

2. Review Your Financial Statements in Detail

Do a thorough review of your business documents that include your income statement, balance sheet, past tax returns, outstanding debts, assets, liabilities and a projection of immediate cash flow. If you have a budget you’re using currently for your business, use that as that will serve as a starting point for the new budget.

3. Define the Costs

Figure out the specific costs associated with each of your identified goals. Break down each of your goals into an annual tangible amount of money and further break it down by months. Fill in all of the costs, and conduct research to generate an approximate cost for each item you do not have the cost of.

4. Create Your Basic Budget

Gather the information from your business documents and specific costs and put them down on a spreadsheet. Your budget should be a tool that you use in your business on a daily basis. It is not a document that you create and then forget.

These steps will help you start off good good but it may be inadequate when you have to manage your cash flow as well. Once you have the budget, you need to create a detailed cash flow forecast. A cash flow budget guides you making the right decisions to ensure comfortable liquidity for your business and helps organisations anticipate cash flow issues and resolve them on time.