Budgeting process: expenses

The last two weeks, we talked about how to properly create a sales forecast for 2012 which will be used to set goals and also in your budget.  This week we will tackle the expenses.  Many people approach the expense portion of a budget with a broad hand: they increase costs across the board by a set percentage.  The better approach in to go line by line and gather your information.  Talk to your landlord, your utility provider, your insurance agent and find out what they anticipate 2012 to look like. You will also want to consider your staffing levels. If your forecast shows increased sales, will you need more employees? All of this takes time, but you will have much more meaningful numbers to work with.

The whole point of creating a budget is to guide your decision making during the year.  Can you afford to take advantage of a volume purchase discount?  Can you afford to hire more employees?   Is this the right time to expand or do you need to start accumulating cash in anticipation of an economic slump?  Putting together a budget is a little tedious, but the information you get from the exercise is well worth it.