Creating a budget might not be the most exciting task in the world but it sure is one of the most important. This is especially true for entrepreneurs and managers. The purpose is twofold. First, it is a smart way of designating where money should go. This means that every resource should be properly allocated. Second, the process of creating a budget may indicate where money is unnecessarily spent. This information is significant in keeping the business afloat.
The Difficulties of Creating a Budget
Most people put off the idea because it involves numbers, numbers, and more numbers! It is a common misconception that one needs to be an accountant or a math major to be able to accomplish a decent budgeting system. In principle, creating a budget is like making a guide (that should be strictly followed). Simple knowledge on basic mathematical operations and statistics are enough. Besides, there are many programs available that can do tedious computing.
Also, those who are encumbered by this responsibility are either lazy or just fond of procrastinating. The benefits of creating a budget are not immediate and some people think that it’s okay to set it aside for later. A budget should be a priority.
The Benefits of Creating a Budget
It is like making a forecast. Take a look at the past year’s numbers and compare them to this year. Compute for the percentage increase. With this data, every manager can gauge if the business is doing better or not. It indicates if sales are going steady, soaring, or dropping.
Important: this must be done diligently on a monthly basis.
Entrepreneurs learn about the problematic areas of their business if they are creating a budget. Since all expenses are laid down, areas that are falling behind become obvious to them. This will also highlight expenses that are utterly useless.
Budgeting and Income Projection
To create a budget is helpful in meeting those year-end targets. QuickBooks and Peachtree are great softwares. Both can be used in creating a budget that is uncomplicated and easy to understand.
- Step 1: It is important to track what has been done in the past months. Take a look at the financial statements, find a pattern and make some sense out of it.
- Step 2: Create a (realistic) target. Get the percentage needed.
- Step 3: Draft a suitable budget. Focus on the specific categories that are helpful in meeting the said target.
- Step 4: Print out all pertinent documents for convenience.
Lastly, do an honest review of the financial statements, which are otherwise known as Income Statement or Profit and Loss. It is not possible to increase revenue and decrease expenses if these are not thoroughly studied. This should go hand in hand in creating a budget.