How to Create a Business Budget: A 13 Step Process [Infographic]

How to Create a Business Budget: A 13 Step Process [Infographic]

Launching and growing a business is all about taking action. However, without the right budget and financial plan, no amount of action can drive your business in the right direction for steady long-term growth and trading.

Whether you’re interested in starting a small business or building a large company, budgeting is the key to business success. Read on to learn how to build a budget for your business in 13 steps, courtesy of the experts at Corporate Recovery Help.

STEP #1: Research the costs of launching and trading

Before you start your business, you need to know how much it will cost to launch. As the first step in the process of preparing a budget, research how much it will cost for you to launch your business, as well as the costs involved in day-to-day trading.

STEP #2: Forecast your business revenue

How much revenue do you think your business can generate from one month to the next? Calculate your business’s daily, weekly and monthly revenue figures and put together a rough projection of your business’s revenue and revenue growth.

STEP #3: Calculate your gross profit margins

What amount of your business’s revenue will be profit? Deduct your business’s costs from its revenue to work out how much it will earn in profit on a monthly basis as a percentage of its total revenues.

STEP #4: Create a 12-month cash flow projection

Using your business’s revenue and profit margin, calculate how cash will flow in and out of the business over the course of a year. Remember to allow for your business’s payment terms, whether they’re net-30 or net-60, as well as payment expenses.

STEP #5: Adjust for bad debts and customer defaults

Unfortunately, every business has to deal with unreliable payers. Adjust your cash flow projections by accounting for bad debt, late payments and other setbacks that could affect your business’s revenue and cash flow.

STEP #6: Adjust for seasonal revenue fluctuations

Many businesses experience fluctuations in revenue and profit from one month to the next. Research the seasonal demand trends for your market so you’re aware of any fluctuations ahead of time.

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STEP #7: Study long-term industry trends

Is your industry growing, static or shrinking? Use reliable economic data from real experts – experts in your industry, if possible – to calculate your business’s growth potential over the long term based on industry trends.

STEP #8: Decide how to spend your budget

Are you going to buy or lease technology and equipment for your business? Will you buy used or new products? Will you finance or buy outright? Before you get started spending your budget, work out how you can spend it most effectively.

STEP #9: Work out costs with suppliers

How much will it cost for your business to purchase or rent the items and services it needs to launch, operate and grow? Work out the costs of doing business with your suppliers to get a firm idea of how much your business will need to spend.

STEP #10: Work out necessary spending

Work out how much each department of your business will need to spend in both the short and long term. Speak with department heads to project one-off expenses, agree on minimum necessary spending and create achievable targets.

STEP #11: Figure out what to prioritize

When your business starts earning a profit, how should you spend it? Prepare ahead of time by deciding where to assign profits – should they go above projected levels – and creating a hierarchy or projects to prioritize.

STEP #12: Prepare a contingency plan

What happens if your business doesn’t perform as well as you expected? Prepare a detailed, actionable contingency plan that you can put into action if your business fails to achieve the targets you set for it.

STEP #13: Plan quarterly budget reviews

Over time, the needs of your business will grow alongside its earnings. Plan regular budget reviews so that you can react to over or under performance, adjust spending to maximize your business’s growth potential and capitalize on new opportunities.

Ivan Lavelle is a Senior Business Rescue Consultant working for Corporate Recovery Help. He has been assisting company directors for over a decade.