How to Create a Realistic Budget for Your Company

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Image courtesy of [Ppiboon] at FreeDigitalPhotos.net

//projecteve.com

Whether you are just starting a business or you are during the preparation stage of your next accounting period, you must create a budget for your company and its smooth going depends on how realistic this one is. The principle is quite simple: make estimations both for your expenses and for your revenues and try to include everything so that your company does not find itself short of money during the year.

For instance, you should decide in advance if your kind of business needs a car or several and which type. Read this guide here to learn useful bits of information and make up your mind about the type of car to purchase for your business and the amount of money you need to borrow for this purpose. Even if you have the necessary amount to pay for it in cash, getting a credit for your car or leasing it are sometimes viable options that leave you and your business enough air to breath for a longer time.

Liquidity issues represent just one of the risks you can avoid by creating a realistic budget for your company. Any partnership that you might want to establish (with your bank, with suppliers or clients) will take this aspect into consideration as the prospective partners will certainly want to look into your business’ financial health.

At first, you must identify all the expenses you will most certainly face. These include:

– fixed costs (also called structural loads): rent that you have to pay for your premises (offices, warehouses, etc.), salaries (the fixed part of them), payroll taxes, electricity bills, telephone, water, insurance, software licenses and computer hardware, the repayment of bank borrowings, depreciation of assets, etc.

– variable costs (also called functional loads): wages (the variable ones such as commissions paid for sales or bonuses), raw materials, travel expenses (gas, tolls), any tickets or transportation costs that the company covers for its employees, repair and maintenance costs, energy consumption that will vary depending on the number of machines used and their operation time (day and / or night),etc.

Secondly, you have to calculate the total revenue that will cover all these expenses. They can be of two types: either regular or exceptional. The concept of regular receipts refers to the estimated amount of your projected revenue (sale of finished products, goods, services as well as your commissions). Exceptional revenues include several categories, such as:

– Cash flow: you can increase your company’s capital. There are three types of inputs: in the form of cash, of assets or services.

 

– Public financing: you can ask some local or other public institutions to benefit from subsidies (equipment, operating or capital).

 

– Bank loans: when setting up your business or during the year, you may need to get a loan to start your business or to absorb the losses of the previous year.

 

By calculating the difference between the amount of charges and that of revenues, you will realize if your company makes a profit or a loss and you will know how to adjust your budget so that you turn your business into a blast. Sane financial planning and a good resources management are the keys to your company’s success.

 

Image courtesy of [Ppiboon] at FreeDigitalPhotos.net

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