Yes, you do. If you are running your business on the fly without a plan and just spending what comes in, you aren’t do yourself any favors.
Would you build a house without knowing what you could afford to buy and then keep? No, I’m sure you wouldn’t.
Having a budget for your business is as simple as wanting to know your revenue and cash flow. But there’s more– having a budget will help you in a number of areas, including:
- Improving your enterprise’s efficiency.
- Identifying funds for reinvestment.
- Predicting slow periods.
- Estimating profitability.
- Giving a view into the future.
- Helping you maintain control.
Like we’ve discussed in earlier posts, the more you know about the day-to-day operation of your company and being able to take its pulse at any given moment, the better chance you will have to grow and thrive.
Where should you start in creating a budget? Consider these items as you begin to formulate your initial and on-going budget:
- Examine your revenue. Knowing your income will help you understand the strengths of your company.
- Subtract fixed costs. Rent, cost of goods sold, debt repayment, payroll depreciation, taxes and insurance to start.
- Determine variable expenses like your salary, utilities, marketing, equipment upgrades.
- Create a contingency fund. This will help you with emergencies.
- Create a profit and loss statement or a balance sheet.
- Outline a budget that looks ahead.
With these elements in hand you can start down the road of producing and managing a budget. Don’t be a stranger to your company’s operating profile.
For more on how to develop and implement an overall financial strategy, call or write to us. TFO Solutions is dedicated to helping entrepreneurs and business owners with their finances from the back office to the boardroom.
The TFO Team