Annual budgets are important for every organization in order to maintain their finances. An annual budget not only provides an accurate picture of the funds but also shows the funders how their money is being utilized by the company. It can be used as a backup to your funding proposals. It helps in keeping a control over spending to avoid debts and allows the organization leaders to take better decisions. A bad business budget can not only lead to complications and gaps in finances but can eventually lead to business failure as well. So how should you prepare an annual budget for your business? The following article will give you 10 steps to do so.
Consult all the Departments
The annual budget should be created by consulting all the departments and not only just the accounting department as each department requires their own budget. For example, from the manufacturing team, you can get information on the cost involved in the delivery of goods and purchases of materials and the sales team can give you the revenue assessment details.
Determine the Expenses
A good way to avoid unnecessary expenses is to research the costs that will be involved such as rent, salaries, internet costs, phone and other utilities costs, marketing costs and so on. It is always recommended to expect higher than the actual costs in order to avoid any funding issues. This process will help the business holders to make informed decisions regarding the organization and will help them prepare for any unexpected financial crises as well.
As you determine how much money you will be needing you should also estimate how much revenue you may generate. If you already have information about the previous year’s revenue you can easily use it as a baseline for the revenue forecast for this year. Create an estimation of all your funding resources. Discuss with your sales department how much revenue are they expecting. Know what your customers are expecting from your products and services. You may also consider your recent monthly growth and make estimations about revenues from that.
The Gross Margin Profits
Make an estimate of how much money is left with you after paying all the expenses. This is what is stated as gross margin profit. Start with making a list all the sales. Then subtract the revenue costs from that. Consider the same process department wise and overall. This will give you a clear picture of how the money is being utilized by every department and where is the scope of increasing your profits.
Have a Cash Flow Plan
A cash flow plan can help you identify when and how much your company should spend. It is a must for businesses that are seasonal as then you will have an idea how to manage your expenses in the offseason. Cash flow plan is generally an estimation of how much money the company is going to produce and how. With this information, you can easily create a budget and estimate your monthly expenses.
Consider Industry Trends
Know what the industry forecasts say. If you want to run your business smoothly even with unexpected industry changes you must have a plan beforehand. Knowing the economic and industrial trends can help you adjust your budget accordingly so that you do not have to face any difficulties in managing your business operations. For example, if your industry is expected to face a financial crisis you should be prepared for handling your expenses accordingly.
Prepare for Seasonal Change
Some businesses do well in certain periods of the year and at other times they have to face a slowdown. Hence your annual budget should be prepared keeping in mind how are you going to tackle the seasonal changes. For example, figure out how much you should save in order to manage the expenses in of offseason or if you should hire people temporarily in the peak season so that you do not have to pay unnecessarily in the offseason. Here are more tips on how to handle finances of a seasonal business.
Creating the Contingency Plan
It is very good to have a plan for how your business will deal with the odds. As you create the annual budget create contingency plan simultaneously to make sure how you will deal with your finances. Create an effective savings plan that will not let your business shut down in case you lose a lot of customers or have to face any other set back.
Know How You will Spend
If you want to maintain the annual budget then you should keep a check of how you are spending money. Make sure you are spending money on the things that help your business in growing further. The best way to monitor this is by having a spending strategy for your business. For example, decide if you want to buy or rent the office and the technology or keep a check of the old products before you buy any new ones for your office.
Planning a Budget Review
One thing that is important to note here is that the annual budget of a business is something to be assessed regularly and not only just at the time of a financial crisis. Business owners should always follow a proactive approach and the best way to implement that is by reviewing the budget often and making any changes if required.
Preparing an annual budget for your business is one of the best practices to set it up for long-term success. If you think you cannot organize it on your own seeking help in creating annual budgets today is as easy as seeking economics dissertation help. You can easily find many business consultancies that can help you in creating as well as monitoring your budgets regularly. They can guide you while taking all the major financial decisions for your company. So why not start planning today for a bright future of your business?