Budgets and small businesses
Budgets: A budget is an estimation of revenue and expenses over a specified future period of time and is usually compiled and re-evaluated on a periodic basis. Budgets can be made for a person, a group of people, a business, a government, or just about anything else that makes and spends money. Investopedia.
Why have a budget?
It will help figure out how much money you have
How much money do you need to spend on the business and when?
How much do you need to bring in to meet business goals. For example determining liquidity will help you ensure you have enough to pay bills. Ensure your accounts receivable are being collected within 30-60 days and ensure payables are collected before your suppliers decide not to supply you because you can’t pay them.
Did you know you could look really good with high sales and/or service revenue and low expenses but the business can still fail if the cash is not available to meet immediate obligations. A budget can help keep track of this and more.
A budget is constantly revised to reflect changing business conditions. At a minimum a budget should be revised every year.
Banks and investors will want to see the business owner’s predictions.
A budget is often part of a Business Plan
The staff could also benefit from knowing the goals of the company.
Start with the budget for last year if one was prepared last year.
What
What type of costs can be calculated:
Start up costs
Costs of doing businesses
Cash reserves
Whether there are cash reserves
Amounts needed for capital improvements
What are the components of a good budget?
By looking at the individual components it is usually possible to determine other components.
Cash budget: How much cash does the business need on hand?
Investments of spare funds
Sales on credit
Estimated amount of receivables
Estimated amount of payables
Expected wages and salaries
Expected payroll tax, social insurance, health insurance and pension contributions.
Expected sales and/or service revenue for cash and on credit
Expected level of expenses
Expected profit (revenues less expenses)
What resources are available?
If you are using Quickbooks Online Plus one of the features is a budget function. You are likely preparing accounts or someone is preparing them. The budget should be easier as you already have some figures.
Microsoft offers a series of free downloadable budget templates. These include a rolling budget for small business, an expense budget, a website budget tool, and an annual operating budget for a services business. https://go.skimresources.com/?id=122276X1582760&isjs=1&jv=14.2.0-stackpath&sref=https%3A%2F%2Fwww.inc.com%2Fencyclopedia%2Fbusinessbudget.html url=http%3A%2F%2Foffice.microsoft.com%2Fen-us%2Ftemplates%2FCT101172321033.aspx&xguid=01EDKX2TE8WJQ8PV1TZTYRZ0SB&xs=1&xtz=180&xuuid=c27b03dbf5ef9de0f1e70713d79c9601&xjsf=other_click__contextmenu%20%5B2%5D
BetterBudgeting offers a free budgeting worksheet. http://www.betterbudgeting.com/budgetformsfree-basicbudgeting.htm
If preparing budgets is not something you enjoy you can always get the help of an accountant.
Any questions?
Giles Belfrage, CPA (Canada) CMA
Accountancy Tamer
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