Budgeting is a process of estimating costs and income, while projecting your net profit. Taking the time to craft a budget allows you to create a roadmap on how you plan to spend your money and what earning potential you plan to achieve.
When should I start budgeting or create a budget?
As you reach the end of your annual business year, it’s the perfect time to review the status of your budget and make projections for the coming year. That way you’ll have a full year’s worth of data to pull from to set yourself up for a new year of recordkeeping. If you missed your opening for this at the end or very beginning of the year, that’s okay. It’s never too late to start keeping track and thinking about your business’ financial health.
Why do I need a business budget?
It’s a good best management practice to make an annual budget to better understand the overall picture of your finances. Building a budget for your farm business will help you plan for the future, evaluate opportunities for saving, and reveal potential opportunities to invest in your operation. If you want to run a profitable and resilient business, build your budget and keep these five tips in mind.
Simple budgets can be prepared using the following formula:
Projected Net Income = Total Projected Income – Total Projected Expense
Tip #1. Identify Your Goals
Each year, it’s important to identify the business goals that are important to you, while keeping in mind your projected long-term income and expenses. You may have many ideas for growing with your current market or ways to enter new markets, but you’ll need capital resources to make either of those moves. Making realistic and timely projections is important to the overall budget process so you can adequately plan to save and manage your liabilities simultaneously.
Tip #2. The Act of Discipline
Managing your business or personal finances with discipline is a valuable skillset. Whether you are a business owner or simply managing your personal finances, it is important to be able to identify both essential needs and wants on your expense list. It is important to ask yourself: Is this an expense I can and/or should afford? Making good decisions and taking an honest approach to your business choices will help you to be more successful in budgeting for the long-term.
Tip #3. Do Your Research
When you prepare your budget, determining your estimated annual income and expense is an important step to the equation. Having a reliable list of valuable resources can help guide you with less concrete items like pricing estimates, market prices, and estimated costs. This type of research will aid in making informed business decisions, which should help you to maximize projected net income.
Tip #4. Stick To Your Plan
As you move along with your business decisions, you may find yourself challenged by unexpected expenses. It is important to plan for unexpected costs along the way – they happen. Being proactive by creating a nest-egg of savings is a great best management practice to make sure you can continue to stick to your budget, even in adverse situations. This business strategy can help prepare your business and family for the unexpected.
Tip #5. Review Your Plan Continuously
Make time throughout the year to review your plan, where you stand according to your budget, and make adjustments for items that have changed. Pricing can change, along with future market forecasting and interruptions, which can force you to evaluate your business decisions. Don’t just focus on the beginning and the end, and make sure to manage it continuously. A good financial manager will monitor their finances throughout the entire year.
Remember, crafting your personal or business budget for the coming year can be a valuable business management tool to prepare you for your future goals. We know the thought of starting on this may be overwhelming, but we can help! Download your free basic budget template here.