In the first part of this article, we told you about budget, its importance in your business and how often you should create it. In the second part, we will guide you on how to create a budget and how you should refer to it.
CREATE a Budget Follow these basic steps on a regular basis and you will find that budgeting is not all that difficult at all –
First Budget: •The first budget is always based on average forecasts.
•Identify all types of expenditure that you expect for your business, both capital and recurring in nature – for e.g. raw materials, rent, salaries, utility payments, equipment, furniture, etc. •Identify the sources from which funds will be available – funding, revenue, income from investments etc.
•For businesses who are about to start or have just taken off, sales trends in similar businesses should be analysed in order to arrive at a realistic revenue figure.
On-going Budget: •Review the assumptions about the enterprise’s business environment that were used as the basis for the last budget, and update as necessary.
•Make realistic forecasts of revenue, income from other sources and outside funding for the budget-period
•Similarly, make realistic forecasts of associated costs, payments expected during the period
WHAT YOU SHOULD DO with your budget:
Foremost, do not put your budget aside after creating it. Remember that it should serve as a ready-reckoner and a speed-breaker for you in the daily course of your business activities. Here’s what you should refer to in that precious document –
• Compare the forecasted numbers with actual ones to find out if there have been favourable or unfavourable variations.
• Look for reasons of wide variations between forecasts and actuals, and point out if any of your assumptions was lacking. Use this information to improve your business and create a more accurate budget for the next period.
• Find out if any slags can be plugged — check for ways for ensuring cost efficiency, see if your debtors are paying you on time. Remember, the budgeting exercise and the budget should be taken seriously in order to ensure the smooth running of the enterprise. However, also remember that, sometimes you will have to deviate from your budget owing to urgent business needs. But the deviations should be only in the best interest of the business.