Are you an entrepreneur who’s afraid of budgeting? Do you believe that you don’t have the qualified skills necessary to perform the budget process for your small business? If so, you’re not alone, in fact most entrepreneurs feel this way. However, rest assured that YOU can do this! In fact, you must have a budget as it is vital for planning the future of your business. It is the foundation in which to build upon to determine the need for mark ups, expansion, growth, and for providing the required gross profit to sustain operations, etc.
Simplistic Financials has a simple formula that small business owners, network marketers, and entrepreneurs alike can follow to make the budget process less daunting. That is our PPFE (Past, Present, Future, Estimate) Small Business Budget Formula.
Sometimes the past is a very good indication of what may happen in the future. Take a look at your past financial statements. We recommend examining the last two years of income and expenses (however, if you only have the prior year’s statements that is fine too). Look for trends, percentage increases/decreases in certain areas of income and expenses (variable expenses), and new expenses.
Tip: A quick way to locate prior revenue and expense information is by using your prior year’s income statement as well as budget-to-actual comparison reports. If you keep everything on Excel spreadsheets use the last month of your fiscal year’s income statement.
Run a year-to-date income statement to review revenue and expenses from the beginning of your fiscal year to the present. It’s important to have a current understanding of your business to be able to have a forward look into operations for the years ahead.
Review for changes and evaluate if the percent of change is similar to prior years. Since you’re reviewing year-to-date information, this is a good time to create a forecast for the remaining months of the year. This will be really helpful for ensuring that next year’s budget is as accurate as possible.
Evaluating your past and present financials will provide a great basis for next year’s projections. You are able to determine educated assumptions to provide you with solid and substantiated revenue and expense projections for the next year’s budget. Additionally, you take in account major expenses and income that you believe will occur in the new fiscal year, upcoming changes in insurance fees (and other areas that usually fluctuate from year to year).
Budgeting can be overwhelming for some, but if you keep in mind that it’s not going to be perfect, it will ease the frustration a little. Budgets are estimates based on what you believe your business will do in the future. You determine these estimates by reviewing the past, present and future operations. In addition, take into consideration goals and objectives of your business, resources, market, etc. Then provide justification for your assumptions.
Note: This is a simple basis for introducing entrepreneurs to the budgeting process. Please remember that before embarking upon doing your budgets you must first establish goals and expectations.
We want to hear from you: Do you have a budget set up for 2011? If so, feel free to share what’s helped you in budgeting for your small business? If you do not have a budget created for 2011, please share why?
For more information or assistance on budgeting for your small business, contact us at firstname.lastname@example.org.