How to Develop a Budgeting Format for a Small Business

Operating a small business is a quite challenging venture. Even if you don’t need to manage large amounts of money, you still need to manage your money effectively in order to make sure your venture remains in business and is profitable.

Developing a complete budget for a small business, although it may not be as painful as it would be for an organization, it requires good planning.

Besides, it is a detailed process that, if performed correctly, it can provide you a stable basis to start from when considering successful business operations.

With a business budget, you will be able to track common business expenses and operating costs.

To achieve that, you need to take five necessary steps, which involve developing: a sales budget to project your sales estimates; a production budget to estimate your production costs; an operating expenses budget to project your business expenses; a budgeted income statement to compare your operating costs to your estimated income; and a cash budget to calculate if you make a profit or loss.

Here are the steps you need to take:

a) Developing a sales budget

The sales budget is extremely important because it is the first step in developing your budget for your business.

If you overestimate your sales, it means you will end up with a huge inventory for which you would have spent a lot of money.

From an operational perspective, holding too much inventory creates problems in selling your products in a timely manner. You may also face problems with your inventory going obsolete and losing money from having to dump it.

From a financial perspective, holding too much inventory indicates a low or a zero return rate of return. It also means lower liquidity because you cannot sell more products in a given period of time to turn your inventory into cash and depreciate the money you have given to purchase it.

If you underestimate your sales, you will probably be unable to deliver your product and meet your customer needs.

So, in both cases, a wrong estimate in projected sales will cause your business to suffer.

b) Developing a production budget

A production budget will help you estimate the cost of producing your products including the cost of raw materials, tools, and labor.

Inaccurate estimate of production costs leads to losing money. If you overestimate your production costs, you will produce expensive products and you will charge your customers more.

This will lead your customers to leave your business, sooner or later.

On the other hand, if you underestimate your production costs, you will eventually undercharge your customers thus losing money from selling your products lower than their actual price.

c) Developing an operating expenses budget

The operating expenses budget is typically included in the production budget as it includes regular business expenses.

These are indirect costs such as facilities expenses, furniture, building maintenance, vehicles, rent or mortgage expenses, utilities, insurance, salaries, advertising, accounting, and legal expenses.

An operating expenses budget may also include costs for equipment such as machinery, supplies, and maintenance.

Usually, the operating expenses budget is divided into several areas depending on the subject such as human resources, administration, research, and advertising.

d) Developing a budgeted income statement

After having prepared the sales, production and operating expenses budgets, you need to estimate your income so that you make sure you don’t spend more than what you earn.

This is the step where you need to be absolutely honest with your income projections, which means not too optimistic, neither too pessimistic.

Realism is the key to develop a realistic income statement that will help you prioritize your needs in case of unforeseen expenses.

The point is not exceeding your budget at any point and to remain within your budget limits without needing to spend more than what you actually make.

e) Developing a cash budget

A cash budget is developed to project the cash required for unanticipated needs.

This simply means that you need to break even and make a profit for your business so that you have cash available at any given moment to take care of your business.

Besides, by having sufficient cash on hand, you always have more alternatives than risking losing your customers to a competitive business.

In conclusion, developing a complete budget for small budgeting is required to make sure you have enough money to run your business.

It is actually the best way to determine your resources and get your products to your customers effectively and in a timely manner while ensuring a profit for your business.

All you have to do is follow the above-mentioned steps carefully and be honest to yourself. Only then you will be able to develop a realistic budget that will ensure profitable operations.

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Budgeting for College

Ah, college.

The most important time of your life – the start of your career in academia, the moment lifelong friendships are formed, romantic relationships begin to take off, and it’s only a few months away.

But wait for a second! How are you going to pay for all of these great experiences?

Some college greenhorns are set up well with family trust funds, generous donations from parents or grandparents, or a personal nest-egg large enough to pay for just about anything they desire.

But what about you? If you don’t fit into one of these categories, you’re going to have to face the truth: you’re going to need a good amount of money.

Most freshmen live on campus, take part in at least a partial meal plan, and share a room with one, two, or even three other people!

With this in mind, carefully assess what you need to get through your first year. Do you need to dine out for every meal because you hear the University’s food sucks? Plan for it.

Do you wear expensive shoes fast or like to keep up with the latest designer purses? Then budget for it.

While I personally believe college is a perfect time to exercise frugality, not everyone needs to live by these ideals.

Some spend endless amounts of money in college because they know they won’t be able to when they are later saving for a house. Some begin their smart money decisions much earlier.

I find it best to start with an obtainable dollar figure – let’s say, $2,000. That doesn’t sound like a lot of money, but it is a reasonable amount of money to expect to make over the summer before college. Let’s say you make $8 an hour. It will take you 3 months at 20 hours per week to make about $2000 before taxes.

Not a bad time commitment considering this can fully fund your lifestyle for the next 9 months, giving you the following summer to repeat the process. Many students do this and live comfortable lives as:

$2000 divided by 9 months = $222/month.

A smart person, with no financial commitments (car payment, personal loans, etc), will take a long, hard look at what this money can do for them.

Although it is not much, saving just 25% of this $222 and not allowing yourself to touch it means an additional $500 in your bank by summer, ready to either roll over into your sophomore year or to be combined with the following year’s savings for a couple month’s rent in a shared, off-campus apartment.

Trust me, an extra thousand or so in the bank is a great buffer when trying to make it on your own as expenses seem to come out of the woodwork. If you can save more, do it!

While $200 or so a month doesn’t sound like much to live on, it can be carefully appropriated so that you can have fun and not have to decide between filling up your car or going grocery shopping. To help make this tangible, please take a look at how I structured my budget:

$2,000 to spend – $222/mo

Savings – $72
Groceries – $75
Gas – $50
Dining out- $25
Entertainment/misc – $50
———————————-
Total : $222

A good rule of thumb is to save exactly (or close to) what you spend on groceries, or whatever your second highest cost is.

Not only will this get you to give the expensive ice cream or almond butter a second thought, as it will essentially cost you double the sticker price, but it will also help you establish a great way to save throughout your life.

Notice that savings are also placed at the top of the list.

This is because you are living off of a monthly stipend that you control. You must pay yourself before you pay the grocers, the oil companies, the restaurants you enjoy, and whatever else eats up your money.

It helps to visit the bank once a month, get 5 envelopes, and place the appropriate amount of money in each one.

Just make sure you put it in a safe place – dorm parties can get rowdy and often bring a mixed bag of people (trust me).

So, establish a simple budget and find out what you need each month to survive comfortably.

Be mindful of where your money goes, budget accordingly, and enjoy financial stability in a time when nothing else seems to be!

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How Budgeting Can Improve Your Life

Budgeting is an important part of independent financial well being. Budgeting can be painful and difficult to stick to; it can also be helpful. Most people use budgets for making sure that they can have savings in case of an emergency, to plan retirement and a key to getting them out of debt.

Using a budget can help you understand your spending habits, and show you where you may be spending too much money.

Once you understand your spending habits, you can monitor and control them, then you can change them. Budgeting can help with making your financial future secure and predictable.

Look at your expenses.

expensesCategorizing them is the best way to monitor them, such as auto expense, groceries, electric and gas, credit card debt, etc. Go through a couple of months of records and categorize everything that you spent, make sure to include your credit card expenses.

Find an average of all expenses in all general categories for the months that you included. Are you spending a lot in the entertainment category?

Are you spending more in the entertainment category than you are putting into savings? You are never too old to start planning for your retirement; with the inflation of the US dollar, you need to start thinking about it now.

Think about this: If you are 25 years old, your annual income is $32,000 and this is a comfortable lifestyle for you, you currently have no savings, but you are currently putting away $100 a month into a 401K or IRA.

You will need $1,739,000 to retire at the age of 65, but you will only have $403,000 at the age of 65 even using the most aggressive of investing if the market performs averagely and if you continue of to invest $100 per month.

Looks like you may come up a little short. (If you are not sure about how much you will need to retire, look for a retirement calculator on the internet, Fidelity has a fun little interactive calculator that you can use.) A budget can help you with figuring out just how much you can get into a savings plan comfortably.

Look at your income.

incomeWhere does your income come from? Is it steady or sporadic? Categorize your income as you did with your expenses.

Subtract your expenses from your income. Are you coming up negative? If you did, then you are overspending and you need to get it under control. Over-extending yourself will cause you to end up with nothing but problems later on, so it is to your benefit to fix the problem as soon as possible. A budget can help you see where you are overspending and where you can cut back.

Do you really need that new DVD? Did you really need to stop at the coffee house every morning? Even though these are little purchases, they add up quickly! Frivolous spending is a killer if you can afford it, good for you, but most people cannot afford it. Unfortunately, most people don’t understand that they can’t afford it. This is where a budget can help you. It will help you understand just how much you are spending and on what, it will also allow you to see where you can cut out some unnecessary spending habits.

Budgets also help with long term planning and cash flow.

Cash flow is important and poor cash flow can lead to an additional credit card or revolving debt.

If you need to pay your electric bill, but you overspent at the grocery store, then you might choose to pay your electric bill with your credit card or line of credit.

Maybe you know that you are going to be missing a week of work in two or three months, so you will lose the income.

You can plan on stashing enough money to make up for the missing income. Consider making a budget three months at a time, or using a cash flow chart for a six month to a year period.

This may make a large difference in understanding the dynamics of your spending and income. It will also help you plan if you can afford to make large purchases such as cars, boats, and homes.

Getting out of debt is the biggest reason for using a budget.

In 2006, revolving debt reached $876 billion in the United States. Financial stress also became the leading cause of divorce in the US in 2004.

It hasn’t changed since then. Rich and poor can improve their financial situation from budgeting. I recommend budgeting for every household in America, let’s get this country out of debt!

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4 Tips for Free Personal Budgeting

Fact: if you wish to work your way to financial freedom, you must track your spending habits.

It is common knowledge that the best route to avoid financial hardships is by monitoring how much money you are spending versus how much money you are bringing in.

It’s imperative that you bring in more money than you spend, obviously.

How do you track this information?

You could spend hundreds of hard-earned dollars on specialized budgeting software to track this information for you.

Most of this pricey software can provide you with the tools you may need to help you in this endeavor.

However, to use these tools you actually have to spend money to get them! Isn’t the point of creating a budget to save that money?

Solution: Use Microsoft Excel or Google Spreadsheets instead!

Some of the benefits to using Microsoft Excel or Google Spreadsheets to plan your finances and manage your budget are as follows:

1. No Cost – Most of us already own and use Microsoft Excel, either at home or at work in the office.

However, if you are one of those rare cases that doesn’t own or have access to a copy of Excel, don’t bother purchasing it just yet!

You can achieve the same results, and do the same work with Google Spreadsheets, and best of all it is free!

Spreadsheet’s uses are so varied that you can make them do almost anything for you, and your money.

Almost all of the fancy financial software is going to end up costing you hundreds of dollars over time.

It seems to me a waste to be spending that kind of money on software which is supposedly going to be used to save you that very same money.

Save that money and time, just use a spreadsheet to do your financial planning and budgeting.

2. Easy – Neither Microsoft Excel or Google Spreadsheets are particularly difficult to setup and use. If you’re willing to spend a few minutes to learn a few of the simple formulas, you will be able to quite easily have them automatically add, multiply, subtract, and divide where and when you want and need them to.

3. Simple – Most specialized financial budgeting software is just not all that easy or simple to use.

Take the ever popular software package, Quicken, for example. For simple home budgeting and financial planning, it really was overkill. What I needed was something simple and easy to use, to setup to take care of my personal finances.

However, Quicken was so complicated to setup that I found I just didn’t want to bother using it. When it comes to a personal budget, I want something that’s easy to use, and Quicken was definitely not easy to use. By using a free spreadsheet application like Google Spreadsheets you will save a lot of time when it comes to learning how to use the program, and obviously, it saves you a lot of money, as it is free!

4. Customizable – Wouldn’t you like your budgeting software to allow for easy customization? Excel and Google Spreadsheets allow you to select your own colors, categories, sizes, fonts, styles, and structures to get what you need done. Everyone is different, and being able to customize your software to fit your needs is very important.

If you’re looking for a cheap or even free way to keep track of your personal budget and personal finances, I highly recommend using Microsoft Excel or Google Spreadsheets. I wouldn’t waste my hard earned money on bloated, specialized financial software. At the end of the day, your wallet will thank you for choosing the cheap or free method!

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Budgeting: Bad Habits and Ways to Save

Back in early 2008 I still lived with my in-laws.

Money was no problem and I guess I created this bad spending habit.

I was lucky to not pay rent and thus even more spending, and habit building.

I and my girlfriend moved out together that summer and we thought it was a cute cheap little place. The location is super too!

But only after a month or two living there we notice that our money is going too fast versus how much we make and pay in rent and bills.

So I wrote up a budget.

This budget wasn’t your regular kind of budget, they never work for me – it just seems like a long list of things that I have bought and to take the time to figure out if they are necessary or not was just too much.

So instead of doing it “old school” or “the right way” I just wrote up categories and then added prices and receipts together and guess what?

I found over $300 in wasteful spending. Maybe another $100 in things I didn’t really need, but still used (such as food from a fancier store instead of Safeway or Giant).

What surprised me the most was that I spend circa $150 on coffee each month!

One hundred and fifty dollars, that’s about 12 packets of Starbucks coffee that would last for over a year.

I got very upset about this and took the step forward and invested in a coffee maker.

I bought a good coffee maker that brews 12 cups for $99. A stainless steel “on the go” cup for about $20 and I now spend about $40 on coffee every 6 – 8 weeks.

While the first month with this investment cost just as much as the coffee did otherwise I now save over $100 each month.

This categorical system is so good to me, I also found out that candy, sodas, junk food and magazines all added up to around the $100 limit.

That’s a soda a day, one magazine a week and McDonald’s every now and then.

I also cut down my grocery bill by $50-$150 each month by going to larger grocery stores like Safeway and Giant instead of Whole Foods.

I hope this inspires people who gave up on budgeting to try out a categorical system instead.

All you need is a top of ten categories or so and you will quickly notice where your money goes to, where you need to cut down and save and it is pretty fun too.

If you load it up in Microsoft Excel or OpenOffice you can do statistic charts to see if your spending has gone up or down.

As I said, it has saved me over $300 a month. That’s over $3600 a year, which now I save for the future.

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