Why business budgeting is important - a guide to getting started

If you are reading this, you most likely already know a lot about business and budgeting. But do you know how to keep your business budget organized and on track? If you run a small business, chances are high that you don’t have the resources to handle an elaborate budget. That’s why it’s so important to have a basic understanding of how your business is allocating its money. A properly planned business budget will not only save time when finalizing expenses but also keep you from overspending. Before confirming an order or finalizing any other deals, always double-check the company’s social media page and website to make sure they have a clear idea of what they are spending money on. A well-planned budget will also go a long way in helping you stay focused on your ultimate goal — profitability.

What is a business budget?

A business budget is a plan you create for your company that details all of your company’s expenses. This might include employees’ salaries, taxes, utilities, etc. A business budget is different from a personal budget in that your business budget is essential to your company’s success. It’s what keeps your company afloat during difficult times and will determine how profitable you are in the long run.

Why is planning a business budget important?

While it’s true that having a clear business budget will make your company’s financial situation easier to understand, it’s also important to remember that having a budget doesn’t mean you will spend money you don’t have. You need to set a budget not because you are afraid of what you spend money on. It’s actually the opposite — a budget is a tool to help you stay in control of your spending and focus on what you have. Contrary to popular belief, a budget doesn’t mean you have to draw lines in the sand and say, “never, ever, ever, ever, ever.” A budget is simply a plan you have for allocating your company’s money.

How to Plan a Business Budget

The first step toward having a business budget is to decide what type of budget you plan to use. There are many different budgeting models that can help you create a budget that works best for your business. Budgeting models include cash basis, all-inclusive, and deferred payment. The cash basis budgeting methodology is the most common and easiest to understand. It’s when you simply count the money in and out of your company each period and record all payments and disbursements in a ledger. If you use a cash basis budgeting methodology, your budget will reflect this. The other main budgeting model is the all-inclusive budget. With an all-inclusive budget, you try to figure out how much you spend each period and then allocate that amount to each expense. All-inclusive budgets are more detailed and can help you better plan your company’s cash flow. To create an all-inclusive budget, plug all your expenses in the beginning and end of the budgeting period. For example, if you have a payroll expense of $1,000 for the month of October, plug that amount into your budgeting tool and see what you get. If your budgeting tool doesn’t let you get to the end of the month and doesn’t automatically include your tax bill, add that money to your budget as well. Use the KISS (Keep It Simple Stupid) method, if you average $500 for educational expenses each month (tax write-off tip) then you can safely budget that for the rest of the year.

Budgeting basics

Here are three important things to keep in mind when planning your business budget: Bring Your A Game- Put your best foot forward when planning your business budget. Don’t settle for anything less than your best. Don’t Forget About Taxes!- Yes, we all know that taxes are calculated based on your income and location, but there’s still a chance you won’t pay them if you don’t have to. Always keep in mind that you need to file your taxes every year and make sure you are in the right financial position to do so. Research Your Business- It doesn’t have to be the most expensive project you have ever undertaken. The more information you have about your company, the easier it will be to stay organized and on-task with your financial goals.

Don’t forget about taxes!

Tax season is the worst, and by the end of it, you will completely understand why. There is no such thing as a tax-free year, and by the time you are done paying your taxes, you will most likely have a very different definition of what is tax-free and what isn’t. One of the biggest mistakes people make when it comes to taxes is not doing enough research. If you make this mistake once, it will drive you nuts all year long. It’s one thing to figure out your income bracket and another to pay your taxes according to that information. Unfortunately, there is no perfect solution to this problem. Each company is different, but realize if you are self-employed, well there are self-employment taxes. If you have employees, there are tax liabilities. If you make profits at year’s end, there are tax liabilities. Selling products? Tax liabilities. The general rule of thumb is to set aside a % each month into a separate bank account.

Summing up

Don’t overthink the process. It will help you stay on top of your business expenses and make sure they do not consume too much of your resources. The best part about having a business budget is that it will help you stay on budget, which will in turn help you focus on your company’s ultimate goal—profitability.