Most people think of budgets and imagine this extra-complicated diagrams and next-level math.
While this image isn’t necessarily a wrong one, you should also know that a budget is only as complicated as you make it. Another thing that will probably shock you is that you already built a budget before.
Have you ever organized a trip or a party at your place?
Remember the list of what you need to buy, the number of people that are coming, deciding what’s each contribution and so on?
Yes, that’s a budget! Of course, it’s a primary form of a budget where the data is quite straightforward, and there are no real challenges. However, it’s still called a budget.
Another mistake that people often make is believing that only big companies require a budget.
Nothing more wrong! Even a freelancer needs to create a budget, and that usually helps to identify the expenses and what are the areas where improvements can be made to save more money in the long run.
What a Budget Really Is
Before we jump into telling you about the five things you need to include in your budget to make sure you’re killing it, let’s take a closer look at what a budget is.
You should not confuse a budget with a list of expenses and income because you will never be able to predict every penny spent.
However, a budget is a guide that assists you in making better spending decisions and helps you grow.
When you create a budget, it is essential to maintain a positive mindset. Still, also you need to make sure you’re not overly romanticizing the entire thing so that you include unrealistic income.
So, you can also refer to your budget as a road-map to use when you’re not sure whether it’s a good idea to invest in something or when you feel that your income doesn’t precisely respect your expectations.
5 Tips to Build an Air-Tight Business Budget
Now that we established that everyone needs a budget and even defined this term for those that are just getting started, it’s time to check out the five tips that would make budget-building a lot less stressful and lead to the generation of a better budget altogether.
1# Be Realistic
When building a budget, you need to do your best to let positive and negative emotions aside. The best way to go around it is being realistic and start from how things went in the previous year.
It’s not a coincidence that budgets are built for one year. That makes it easier to compare the expectations and the reality, while also being able to input the realities of last year.
Of course, you can’t predict every single event that’s going to take place in a year. However, you can do your best to set up a road-map for your company for that given year.
2# Be Constructive
Continuing where we left off in the previous paragraph, you need to find a way to factor the unknown in your yearly budget.
Even though you are sure there is something you can’t possibly know, you have the knowledge that you don’t know that specific info, and you can prepare for it.
So, instead of working on assumptions or leaving a hole in your budget, try to think in a constructive method and address these aspects so that when they happen, they won’t take a big toll.
3# Flexibility is Key
Just because you need to create a budget for an entire year, it doesn’t mean you can’t amend it along the way. It’s not made of concrete.
A budget needs to be flexible and allow certain changes. Revisiting the budget is a very healthy practice, and it will enable you to adjust and stay ahead of the curve.
If you notice you have overestimated some expenses but underestimated others, you can balance things so that your budget isn’t affected in the long run.
4# Details are Key
To achieve a detailed budget, you need to be as accurate as possible with your trial balance.
Of course, you can’t possibly have a line item for every check you will write, however, the more detailed you can get, the better it will be. To achieve that, you need to be able to track expenses according to the way your chart of accounts is set up.
For example, while some companies may be more than ok with a big item called “payroll,” other organizations may want to divide that into employee position types and many other items.
If you ever need to do an audit, breaking down large items in the budget into several smaller categories can be a great help.
5# Take Financial Relationships Into Account
When building a budget, you need to have an obvious idea of what the relationship between the expenses is.
The best example to illustrate a financial relationship is when you buy a flashlight, but for that item to work, you also need to buy batteries.
If you don’t plan for the batteries as well, you’re going to have a bad budget right from the start. Your budget is no different.
For example, if you want to grow your employee base with 10%, adjusting the payroll budget line with 10% is not going to be enough. You will need to take taxes into consideration, benefits, and many more.
Rely on Software
Most accounting tools come with budgeting software that should help you with the entire process. Instead of working your way through an Excel file, such an app can make the whole process a lot easier.
The benefits of using a specialized tool for your budgets are multiple; however, having an overview of how other years performed and being able to link it with other apps are the most important.
Ideally, you’d have the company accountant handle the budget. However, if you can’t afford an accountant yet, these are some things that will help you build a better budget for your business. It’s a mandatory part of planning for the future, and it can help you grow more rapidly.
Are there any other budget tips that you applied and trust? Feel free to share your thoughts in the comment section so that more people get inspired and develop their business. We would love to hear your thoughts and see an open discussion in the comments.
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Author Bio: Randolph Ray is writing about companies and business ever since he started college. He is very passionate about growing businesses and believes all the knowledge needed is out there. We need to find a way to focus our attention on getting it. So, that’s what he does through his texts while submit articles for homemakerguide.com and various other sites.