The budget is probably one of the most important tools that a company can have. It provides an action plan not only for long-term actions, but also for everyday actions.
Properly used, a budget can help a company to meet its objectives, make it more profitable and give it a comparative advantage in tough economic times. It will help you manage your spending, identify warning signs and achieve profitability of your business.
Elements for creating a business budget
To make a budget company must have clear concepts of fixed costs, variable costs and break even.
Fixed expenses are the expenses you have incurred whether or not sales. Are expenses such as salaries, rent, insurance, etc? We should note that our fixed costs are always the same within a range of sales or business, but if that range is exceeded can increase, for example when hiring a new employee.
Variable expenses: These are business expenses that increase or decrease the level of sales. For example, if you have a business selling snacks within variable expenses will be bread, sandwich ingredients, sauces, etc. As the number of snacks we sell, our variable costs also increase. Will have to consider at this point the gross profit, which would be given by subtraction between what entered our sales and variable costs.
Breakeven: It would be the point at which our fixed costs are equal to our gross profit is the sales point where we have no gain or loss. It is important because it indicates what should be our sales volume to break even, and because we can take it as reference to know how much we sell to achieve an expected profit figure.
How is a budget of company do?
To create your own budget, you must first determine which are or will your fixed and variable to then determine the level of benefit to be achieved, and determine the required number of sales expenses.
A detailed understanding of all your expenses and sales forecast is the cornerstone of any budget. If you look them up and use historical data of at least the last two years, with particular attention to seasonal variations. What are the main months of sales? When does a peak at your expense? What percentage increase sales have suffered?
We must be realistic and not work with levels that are not considered reasonable. You can play with the sale price in order to obtain different results.
Using the budget of an undertaking
Once you have prepared the budget do not let archived or stored in the drawer, should be your roadmap realistic forecasts to be met if you do not want to drown in debt. Possibly evaluate your data and check fit with your budget.
Remember that a budget is a dynamic tool and will have to be adjusted periodically to reflect changes in terms of your objectives and the economic environment. Be creative with the use of the budget, there is no single way to use it.
Whatever you do, create goals based on your budget and use it consistently. You will soon realize that you get to where you want to go is easier than ever.