When you first start your small business, preparing a budget, without any history on which to base your estimates, can be a daunting task. This is because while you may have some idea of what you hope to earn and how much it will cost you to earn it and you can make broad estimates of income and expenses it still will not give you a way to gauge your performance and manage your business. While you may be able to get your budget done quickly t is better to start at the bottom and build up.
This may leave you wondering if you really do need a budget.The short answer to this is-yes. Remember that you are in business to make money and that is the best reason of all to have a budget-so you can manage your money. Your budget should serve as an extension of your business plan and strategy.A well-prepared budget should also serve as a baseline and an important reference point to guide your business in the right direction by providing an essential framework for the start-up and initial operating stages.
Having a detailed budget will also be a distinct advantage when you are dealing with potential lenders and investors. This will give them a clear idea of what your business is about; how you intend to carry out the business plan, in concrete, financial terms; what the loan or investment is needed for; and how the money will be spent. A good budget should also be able to show a lender how the loan will be repaid, and will show an investor what type of return can be expected on the investment. In most cases, the budget will significantly improve your chances of getting the financing you need for the business.
It is important to keep in mind that even though your budget is an estimate it should be based as much as possible on actual data obtained by doing research, getting quotes, and assembling and organizing documentation and information. The idea behind building a budget from the bottom up is to start with what you know, (or what you can find out).The idea of starting at the bottom means going to the lowest level of detail, (where you have building blocks)and finding concrete pieces of information that can be put together to construct the various different line items such as revenues, cost of sales, advertising, rent, maintenance, utilities, and other overhead expenses. These building blocks will be classified as quantities, hours, prices and rates. This means that rather than budgeting total income and expenses as a certain amount per month, you can break these figures down into their component parts.
An important segment of your budget should also focus on capital expenditures.You will want to start by making a list of all the property, plant and equipment you will need to get the business started. These items should include:all real property, machinery, equipment, vehicles, furniture, fixtures, and installations that you will need to run your business. Once you have identified the items you need to acquire, you can start putting together cost information from catalogs, price lists, auctions, want ads, quotes, bids, offers, and appraisals. In addition if your business involves building or remodeling a facility, a budget for the work could be prepared based on bids for the job.
A well-thought and prepared budget will enable you to guide your small business from the start-up phase to a successful growth.While the time and effort to put together a budget can seem overwhelming if you put in the work and the time it can pay off in large way as you grow your business.