A pilot would never fly a plane from London to New York without a flight plan that explains how to get there. Yet all too often, business people open their doors without clear plans to help them get where they want to go. One of the easiest ways to get there - wherever that is - is by creating a budget and sales forecast.
A budget doesn't have to be a restrictive plan that forces you to deprive yourself of what you want. In fact, a budget should be a guide, not a constraint. A reasonable budget allows you to do what you want. It allows you to use your resources where they're most needed, so your business will head in the right direction. Creating a financial plan lets you control your business's cash flow instead of it controlling you.
Creating a budget doesn't have to be a complicated or time-consuming task. Actually, in the beginning, it's best to keep things simple. The key is to determine how much you'll spend and earn in any given year, and then use that figure to project how you want to grow in subsequent years.
If you're a new business, you'll need to do some homework and make realistic assumptions about your business. Either way, a budget is simply a tool that allows you to put your money where it can best be used.
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Here are some questions to get you started:
- How much can you realistically sell next year?
- How much will you charge for your goods or services?
- How much will it cost to produce your product?
- How much are your operating expenses?
- Do you need to hire employees? If so, how many, and how much will you pay them?
- How much will you pay yourself?
- How much payroll tax and unemployment tax will you pay?
- How much money do you need to borrow, and how much will your monthly loan payments be?
The answers to these questions will form the basis of your budget and forecast. If you've already written a business plan, you should know the answers to many of these questions. Answering these questions will help you determine 2 essential things - your projected income and your expenses. And that's really what a budget is for - to ensure that your expenses aren't more than your income. It's as simple as that!