Maintaining a good financial plan and business budget is essential for any company – no matter its size. Despite the importance of these tools for business management, many entrepreneurs end up neglecting to create a good budget – a key part of efficient business management .
There are also those managers who have the habit of creating a business budget, but end up getting lost when it comes to identifying the basic components of this budget, such as expenses, costs and expenditures. If you fit into one of these two cases or know an entrepreneur who might be interested in the topic, it is worth continuing to read today’s text.
Find out below the real importance of a business budget and learn how to build a budget correctly to help your company grow and organize your finances and business as a whole. Follow along!
What is a business budget?
A business budget is simply the planning and projections of earnings, expenses, and investments of a company over a given period of time. The ultimate purpose of a business budget is to help the manager establish goals that would be accomplished over a specific period and orderly arrange finances in such a way that these plans actually materialize.
It is also through the business budget that the entrepreneur can monitor and compare the results obtained by the business – seeking to correct any problems or changes of course or take advantage of opportunities that may eventually appear along the way.
Every company has its specific way of drafting its business budget. However, in general, it is seen that a business budget is composed of sales projections, variable expense budgets, production cost budgets, human resources budgets, fixed expense budgets, and even investment budgets.
Why make a business budget?
In addition to allowing the entrepreneur to define and monitor the steps of the company as a whole over time, the business budget enables greater control of all day-to-day processes – which can be decisive for small and micro businesses. This helps not only in controlling and organizing money and cash flow, but also in other important stages of any business.
The business budget, for example, allows you to plan investment in each sector of the company based on perceptions of the strengths, weaknesses, opportunities and threats of each of these departments – aiming at business growth.
As if that weren’t enough, the business budget allows managers to give their employees autonomy when it comes to making decisions involving money. This way, the entrepreneur can delegate tasks related to the business’s finances without necessarily participating in all the decisions – and still maintain control of everything that is happening in the company.
Understanding expenses, spending and costs
A fact is that quite many entrepreneurs end up confusing what expenditure, expense, and cost mean when doing a business budget. After all, if we do not understand these concepts fully, they are bound to look the same; they are not.
From now on, understand the difference between expenses, costs and spending so you don’t make any more mistakes when preparing your company’s business budget.
Spent
Expense is one of the broadest concepts when it comes to the composition of a company’s budget and the final values of the services offered by a company. An expense occurs when a company purchases something – which ends up being converted into an expense or cost.
This conversion depends exclusively on whether or not this expense is applied in the service provision process. When you acquire something and pay for it, therefore, you have an expense – initially.
Expense
Expenses represent everything that needs to be paid out for the company to generate revenue over time. These expenses, however, are not involved in the production process – such as when a service is performed.
Expenses with human resources, marketing, utility bills – such as telephone bills, internet bills, cell phone expenses, among others, are usually recorded as expenses by a company.
Cost
Finally, costs are those expenses actually incurred in providing services. If you need to travel to the client, for example, you will incur a cost to do so.
If you have a buffet service, on the other hand, you will need to pay the waiters, purchase products to serve customers, among others – which will represent the cost of providing the service as a whole. Any supplies are also included as costs in a business budget.
To be able to produce a budget aligned with the reality of your company, therefore, it is essential that you understand each of these concepts and the differences between each of them.
How to make a good business budget?
Creating a good business budget is not as difficult a task as it may seem. Check out some tips below for creating a business budget that will help you organize and keep all the processes involving money in your business under full control.
Calculate sources of income
Identify all sources of income for your business, such as sales, savings, investments, and loans. Only then will you be able to prepare an assertive business budget.
List fixed costs and expenses
Next, it is essential to list the business’s expenses and fixed costs. Don’t forget to include all of these expenses – such as rent, salaries, internet and telephone costs, personnel expenses, among others.
The more accurate your list, the easier it will be to carry out business planning and organization.
Don’t neglect variable costs
Most companies have variable costs – which affect their finances month after month. Therefore, it is essential that you do not neglect these costs: such as water, gas, commissions, transportation costs, advertising and marketing costs , among many others.
Miscellaneous expenses – such as renovations, purchase of office supplies, purchase of electronics, among others, must also be considered.
