There are several key steps you must follow to ensure that your budgets and plans are as realistic and useful as possible.
Take the time to budget
If you invest time in creating a realistic and detailed budget, it will be easier to manage and, ultimately, more effective.
Use the numbers from the previous year, but only as a guide
Collect historical information on sales and costs if they are available and could give you a good indication of the likely costs and sales. But it is also essential to consider your plans for the sales, how your resources in terms of sales will be used and any changes in the competitive environment.
Create realistic budgets
Use historical information, your business plan and any changes in operations or priorities to establish a budget for overhead and other fixed costs.
It is useful to study the relationship between variable costs and sales and then use your forecast in sales to forecast variable costs. For example, if your unit cost is reduced by 10 percent for each 20 percent of additional sales, which will reduce unit costs if you know a sales increase of 33 percent?
Make sure your budgets contain enough information so you can easily monitor the key business drivers of your business processes such as sales, expenses and working capital. Accounting software can help you manage your accounts.
Involve the right people
It is better to ask the staff with financial responsibilities to provide estimates of numbers for your budget, for example, targets for sales, production costs or control of a particular project. If you compare their estimates to yours, you will reach a more realistic budget. This participation will also engage the more important to stay within budget.
You must vent the fixed costs and overheads by type, accommodation costs, including rent, municipal taxes and service charges
• services, p. former., heating, lighting, telephone
• printing, postage and stationery
• expenditure on vehicles
• the costs of equipment
• advertising and promotion
• travel expenses and subsistence
• Legal and professional fees, including insurance
Your company can have different types of expenditure, and it is possible that you had to share the budget between the services. Do not forget to add the amount you want to pay you, and to include a provision for tax.
Your business plan should help in the development of projected sales, cost of sales, fixed costs and overhead, so it is worthwhile to prepare first. See the page in this guide on planning for business success.
Once you have the data on revenues and expenditures, you can calculate how much money you earn. You can examine the costs and find ways to reduce them. You can see if it is likely that you have cash flow problems, which gives you time to take action in this regard.
Once you have developed a budget, you should stick as much as possible, but examine it and revise it if necessary. Successful companies often have a rolling budget, and they constantly set the budget, p. former., for one year in advance.