It is in your company’s interest to have a global view of all strategies, as well as their strengths and weaknesses. Therefore, you also need to focus on budget planning to optimize the sequence of events. Daily activities take time and can easily derail your successful global trading strategies.
What is a Budget?Understanding the importance of budget in a business
Creating a budget is important for your business, regardless of size or industry.
Budgeting will allow you to:
- better manage your money,
- forecast expenses and revenues,
- help you manage your operations,
- test your capacity for the viability, performance and profitability of your operations,
- anticipate problems,
- better allocate your resources,
- meet your objectives,
- increase employee motivation.
Note: this budget will serve as a reference for the coming year. Managers can refer to it to check whether the financial objectives have been achieved.
Now that you’ve figured out why creating a business budget is so important, let’s see how to do it.
Step 1: Calculate your gain sources
First, when budgeting a business, you need to determine how much money your business brings in each month and where that money comes from.
Your sales figures are a great starting point. From there, you can add other revenue streams to your business throughout the month. Your total revenue stream will depend on your business model.
No matter how many revenue streams you have, make sure you count all of your business revenue and then count them all to get a clear picture of your total monthly income.
Step 2: Determine Fixed Costs
Once you control your revenues, it’s time to control your costs, starting with fixed costs.
Your fixed expenses are all expenses that do not change from month to month. This may include costs such as rent, certain utilities (such as Internet or phone plans), website hosting, and employee salaries.
Review your expenses to see which remain the same from month to month. These are expenses that you would classify as fixed costs.
Once these costs are determined, add them together to get the total of your fixed costs for the month.
Step 3: Include Variable Expenses
Variable costs do not have a fixed price and will change monthly based on your operating and business results. These may include items such as utility-based usage (such as electricity or gas), transportation costs, sales commissions, or travel expenses.
Variable costs, by definition, vary from month to month. When your profits are higher than expected, you can spend more on variables that will help your business grow faster.
Try to count your variable expenses at the end of each month and as you go, you will learn how these costs fluctuate, depending on your company’s performance or over certain months. This can help you make more accurate financial forecasts, and plan your budget accordingly.
Step 4: Anticipate one-time costs
Many of your business expenses will be regular monthly expenses that you pay, whether fixed or variable. But there are also costs that will be much less likely. Don’t forget to include those costs in your budget.
If you know you have upcoming one-time expenses (for example, an upcoming business class or a new laptop), adding them to your budget can help set aside the funding needed to cover those costs and protect the business from a sudden change or significant financial burden.
In addition to adding one-time planned expenses to your business budget plan, you must also add a cushion to cover any unexpected purchases or expenses. such as repairing broken mobile phones or hiring an IT consultant to handle a security breach.
So, when an unexpected expense occurs (it’s guaranteed to happen at some point), you will always be ready!
Step 5: Always have a Plan B
To avoid unpleasant surprises and cash shortages due to unforeseen events, you need to set up several budgets for different situations.
These various budgets will follow different emergency situations; Often pessimistic, these funds will have to be used if things do not go as planned.
Establish detailed and operational emergency scenarios, each taking into account different assumptions, such as a shortage of raw materials, increased demand, emergence of new competitors, etc.
Step 6: Bring it all together
Start by bringing together all your sources of gain and expenses together, to get a complete picture of your financial situation for the month.
In your company’s budget, you will want to record your total revenue and total expenses (i.e., add your total fixed, variable and one-time costs), and then compare the incoming cash flows (revenues) with the output to determine your profit.
Budgeting a business is a tedious task at first glance. But, if done properly, it will save you considerable time and clarify many situations.
So take your time, focus and build a quality trade budget.