Wednesday, February 10, 2010's not too late!

What are the components to a good budget?

Yes, we are back to budgeting. It is only mid-February so there is still time to create a great budget for 2010. Your company’s budget should really be assembled as a master budget which is made up of an operating budget, a financial budget, a capital budget and finally a sales budget.

The operating budget deals with your basic business operations: what do you need to run your business? Categories in your operating budget will include marketing budgets, staffing (employees costs), as well as other expenses related to running your company. Take the time to talk to vendors and suppliers so you have good numbers to work with.

A financial budget is concerned with where the money is coming from to keep your business running. How are you going to obtain all the resources you need to run your business? This is looking at your cash flow and determining the timing of when money comes into your company through sales and collection of receivables and when money goes out through payment of expenses, purchases of inventory and other assets as well as payments to yourself, the owner. A line of credit from a bank is the best way to deal with timing issues in your cash flow. In light of a continuing tight credit environment, many small business owners are relying on credit cards to manage their cash flow. This can be a dangerous path to take if your balances push you into high interest rates.

Your capital budget is for evaluating and determining the growth of your company. Careful analysis is recommended before purchases of fixed assets are made or a new product or line is launched.

As you can see, a good budget deals with much more than just expenses. Now let’s talk about revenue.

Creating a good sales budget depends on good research and goal setting. This is a good time to look at where you fit in today’s economy. What is your competitive edge and how are you communicating it to your target market? After you have analyzed trends in your market and your industry, you can create a good sales forecast for your business. Next you will want to write down short-term and long-term goals detailing how you will achieve your sales as forecasted. All this work will allow you to set up a workable and helpful sales budget which when placed into your master budget will give you a masterful tool to manage your small business.

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