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Time To Prepare A New Budget

Dec 02, 2010

As you read this we are approaching a new year, and for most businesses a new fiscal year as well.  Therefore, now is an excellent time to develop a budget for 2011.  So what is a budget really?  Basically, it is a forecast of your revenue, expenses, and anticipated profits.  This process is sometimes referred to as profit planning.


Let's look at a personal example.  Many families prepare a budget of family income and expenses, usually on a monthly basis.  They know what their income is and then allocate that between various expenses like housing costs, utilities, food, savings, and other more discretionary expenses like entertainment.  Preparing a budget for your business is really no different.  It is a projection of what you believe will happen.  So why should you take the time do this?  If you don't, it will be difficult to answer questions like "can I afford to give my employees raises?", how much can I afford to pay myself?", "how much should I tie up in inventory?", or "should we buy a new truck or fix the old one?"  By projecting what your revenues and expenses will be you will be in a better position to answer these questions and others.  The process will help you identify your revenues and expenses, and provde benchmarks by which to measure your progress.  These measurements can be against your budget, last years results, or peers within your industry.  It is important to involve your employees in this process as well.  After all, they will be key players in making it happen so the more they are invested, the better the results you are likely to achieve.


The main elements will be forecasting your revenues, gross profit, and your operating expenses.  Use your historical information as a starting point and be sure to document your assumptions so 2 or 3 months from now you remember why you used those figures.  My final point is, you have to then use the budget to compare your actual performance against, preferrably monthly.  This will allow you to make changes if need be before it's too late.  If you need help in developing a budget for your business, contact Wyoming Entrepreneur for pre-paid, one-on-one guidance.

Category: Accounting

Bruce Morse

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