Yearly business budget template Excel
Know the Components of Business Budget & How to Create a Business Budget
Article written by: Ranita Mukherjee
Business budgeting is an effective technique that helps in controlling the entire cash flow of an organization. It also allows an individual to invest in new opportunities over a certain period of time. It is the best tool in controlling finances and expenditure. Without further ado, let us jump into the discussion and know more about the business budget.
How does a business budget help organizations?
Following are the ways by which a business budget can prove fruitful to an organization:
- Control the finances of an organization.
- Continue to fund for the business commitments in the current situation.
- Making financial decisions in a confident way to meet the entire business objectives.
- Ensuring the employers have enough money for future projects.
- Helps in managing the cash properly.
- Helps in monitoring the business performance.
- Helps in meeting out the entire objective.
- Helps in improving the decision making.
- Helps in making the entire plan for the future.
- Helps in increasing the staff motivation.
- It serves as an indicator of linking cost with revenue.
A budget is a plan which is detailed in nature that gives a clear idea about the business spending monthly and annually. It helps business in many ways. It tells you about the money part which needs to be earned in the future. It also helps enterprises in planning how much is to be spent in the future. It also helps enterprises to make a robust future plan for the business that can be achieved. The budget should be simple and flexible in nature. It can be changed according to given situations.
Components of a good business budget
A good business budget must include the following:
- Estimated Revenue- This is the amount which the business expects to earn in the future. And this amount can be easily achieved with the help of selling goods and services. If the revenue is good, then this amount can be easily reinvested into the business.
- Fixed cost- It includes fixed costs that need to be paid permanently in business. It includes rent along with insurance and legal services.
- Include variable cost- It also includes variable cost that cover the cost of raw materials along with inventory and cost of production. Sales on a commission basis is also a part of variable cost. A budget plan stresses on how to spend these costs perfectly so that the business could save more profit in the future for reinvestment. Salary should be taken under variable cost which should be clearly outlined for the future.
- Cover one-off cost- It includes one-off cost that is required for starting up the business. Moving office furniture along with equipment and software is also included. The costs associated with the launch of the business along with doing the research is also included.
- Cash flow- It is the main part of the business which should be in more at the beginning. At the end profit can be easily taken out from subtracting the money or expenses from the income of the business. It should be managed properly so businesses could save more at the end of the financial year.
- Profit- It is also important for the business as you have more profit you will be on a growth stage. It is important for the business that they should adopt different strategies for increasing the sales of the concern. They should adopt advertising and promotional strategies that will help in growing the business better and the budget for this should be clearly mentioned so that it will not create any kind of problem at the end of the year.
- Use a budget calculator- This is considered the best tool which helps you in updating the status of the business regarding the planning. If the planning is done in a better way, then businesses will be able to save more money in the future.
Thus the business budget should be planned in the perfect way which will yield more profit in future. It will indirectly help in the expansion of the business which is reinvested for the purchase of land or starting up the new concern.
Benefits of budgeting for an organization
It plays an important role in the effective utilization of the resources that are available to the organization. It will help an organization to achieve its overall objectives. It is having many advantages that include:
- It helps in forcing the management to study the problems within an organization along with timely implantation of that. It will help in generating a sense of caution along with care among the line managers.
- It helps in guiding the management about the planning and formulations of the entire policies that need to be implemented in an organization.
- It is one of the ways for controlling income along with the expenditure of the entire business. It will also help in giving the plan for the spending.
- It helps in defining the objectives of the organization which is to be considered in numerical terms for some period.
- It helps in evaluating the policies along with goals which will be tested by the management of the concern for controlling the budgetary part.
- It helps in the involvement of all the management levels that will participate in setting up the goals.
- It plays an important role in the field of directing for both the capital and revenue resources which will prove best for company profit.
- It helps the management to understand the different functional activities and coordinate them easily.
- It helps in empowering the management to decentralize the obligations without losing control from the business.
- It helps in fixing the responsibility.
- It helps in disclosing the weakness of the concern along with removing inefficiencies and deviations from the organization. It also helps in providing the means which will help in overcoming such problems.
- It helps in standardizing the production along with equipment and processes.
- It helps in creating the environment of profit generation throughout an organization.
- It helps in economic control in the production which proves to be efficient in nature.
- It is used as the best yardstick which will help in measuring the performance of the department along with individuals of the same.
- It helps in providing accurate forecasts of the demand of the customers.
- It helps in encouraging competitiveness among the employees along with providing the incentive to that person who is performing best in an organization.
- It helps in avoiding the sale of goods that are not profitable for future.
- It helps in following the systematic approach which needs to be disciplined in nature that will help in solving the problems of the concern.
- It helps in a timely delivery of finished goods.
- It helps in the improvement of the national economy which will further help in increasing the business opportunities. It will also help in avoiding wastage.
- It helps in ensuring the availability of working capital in an adequate way along with using the right way of capital expenditure.
- It helps in informing the employees working in an organization about the achievement stage of an objective in a certain period of time.
- The budgeting report is finalized and checked by the other employees of an organization.
- It helps in facilitating the management that is exceptional.
- It helps in setting up the standard costing system which will prove best for an organization.
- Cyclical and seasonal fluctuations in an industry are fully stabilized with a business budget.
- It helps in increasing the credit-worthiness of an organization by increasing the adequate finance that can be raised from the financial institutions.
- It helps in introducing the proper incentive system for wage payment.
- It helps in providing the discipline that will help in bringing the planning of the management. It also helps in the creation of responsibility.
- It helps in controlling the entire income of an organization along with expenditure.
Thus, the above mentioned are the different advantages of a business budget that will help an organization in many ways.
How to set up a business budget?
Now there are some basic steps will help the organization in drawing up the business budget in a better and planned way.
Give time for budgeting- If you give your extra time to create a realistic budget then it would be easy for an organization to control and manage the finances of an organization effectively.
Learn from last year- It would be the best option if the person will collect some historical information on sales along with the cost part. The organization should also know about the sales plan and how resources can be easily used to change the competitive environment.
Create a budget that should be realistic in nature- The organization should create a realistic budget that should be based on historical information. Other than that, it should contain such information that will help in monitoring the key drivers of the business. Accounting software will add benefits to the same.
Involvement of the right people- It helps in the involvement of the right people that will help the organization in giving the commitment to meet the budget on time.
Review the budget- It is the task of the employers of an organization that they should check and review the budget at a regular interval of time. This will help in observing that the planned objective is working according to the condition set or not.
Thus these are the special keys that need to be considered while making the budget of an organization. It is very important for the business to have a budget because it will help in controlling the finances of an organization. Not only this, it will help in planning and arranging the things in the perfect way which will yield good returns in future. A good budget will prove beneficial for the business as companies will not be spending extra from their cash which will definitely help in saving part.
The money that is saved can benefit the organization in different ways by making the payment of wages along with bonuses that will act as a motivational factor to the employees. This will add in more revenue as the person will be getting motivation in the form of incentives that will prove best indirectly for the business. Employees and employers of the business will be working under the budget set by the company.