Create a Business Budget: A Comprehensive Guide

Building a financial budget is one of the critical functions of any business enterprise. Simply stated, a financial budget enables you to anticipate the business revenue, monitor the expenses and control the cash flow. For a financial budget to be effective and purposeful, it must be prepared for a few different durations: there must be a monthly budget, quarterly budgets and an annual budget. There are certain large corporations that also prepare financial budgets covering a period of three years.

Handling Financial Budgets

There are different ways businesses handle the financial budgets. Some companies prefer not to tamper with their annual budgets that provide projections of both revenue and expenditure. There are others that review their financial budgets on a continuing basis and apply necessary correctives as they go along. This method becomes necessary if any untoward development suddenly takes place that derails the budget provisions.

Role of Financial Budgets

Treating the financial budget as an ongoing management tool for a given year is certainly helpful, lest the operations go directionless. Financial budgeting is no doubt crucial, but the flip side is some businesses are obsessed with the budget and miss some opportunities. This happens especially to start-ups.

Some financial budgets are more in the nature of a cash flow statement. It is necessary, though, to ensure that the financial budget is more comprehensive and includes the anticipated income, the likely expenditure and preferably a projected balance sheet. This will make the financial budget a purposeful tool to forecast potential cash flow needs for the entire budget period.

Preparing the Financial Budget

While preparing the financial budget, it is essential to take into consideration the following key factors: 

• Projected sales turnover for the year
• What the pricing of the products or services will be
• Manufacturing costs
• Inventory requirements
• Operational expenses
• Number of employees and wages
• Statutory levies and taxes--both income tax and commercial taxes
• Building rent or mortgage
• Debt servicing, fresh loans and interest on loans
• Any additional plant or machinery to be bought
• Accounts realizable and provision for bad debts
• Publicity, advertisement and promotional expenses

Although preparing a budget entails several projections, it need not be a daunting task. To make easy the actual preparation of the budget, there are many software packages available in the market.

Professional Help

Everything said and done, it is advisable to consult a certified public accountant (CPA) in preparing the financial budget.  The CPA can be engaged to prepare the entire financial budget or in a limited advisory role. Regardless of the level of a CPA’s involvement, his/her role will prove extremely useful in bringing professional expertise to the budget.

Conclusion

A financial budget can be a potent weapon to assess the current financial situation and tailor the revenue and expenditure for the coming year in a manner that will help accomplish the projections.

To sum it up, preparing a financial budget and monitoring it on a continuing basis can help track expenses, oversee sales achievements, analyze debt realization, control cash flow and apply necessary correctives to attain the set goals.