If you are a fledgling start-up all set to fly, then you should probably know that the first step you take should be to have a proper business budget. You may find this difficult as you have no previous data to fall back on. As a fresher you have to rely on information available from market research.
Start with a Sales Forecast
This is tricky, considering that you are new, but not impossible. The sales forecast needs to have have details of the product you are selling, the price of each unit, and the expected quantities you are planning to sell over a given period. If you are selling more than one product or service, then you can breakdown or segment the turnover budgets, based on geographic area. For entrepreneurs the market data is your best source of data.
Assess your Overall Costs
You have made a sales forecast, so the overall costs are based on your assumptions of sales. You will need to divide your expenditure between ‘production costs’ and the ‘over head costs’, which is the sum total cost of running your business. The production cost includes the cost of raw materials, sales commission, subcontractor services, customer discounts and depreciation. By adding up all these and dividing them by expected sales volume units, you will be able to arrive at a unit cost per sale. Overhead costs include items such as rates, rent, salaries, pension, insurance, telecommunications and interest on loans. These items will not vary according to sales volume so they remain at a more consistent level over time.
Create a Cash flow Forecast
If you want to remain solvent, then tracking cash flow is mandatory. This means that the process of cash flow budgeting should take into consideration your working capital needs for a year in advance. This will give you a good idea of the practicalities. The most likely hurdle to cash flow is late payment of customer invoices. Most businesses do not receive immediate payments and have to wait for a period of 30 or 60 days after invoice is raised. Many small businesses rely on overdraft facility from their bank to overcome this cash flow shortfall. Creating a monthly cash flow forecast helps you in spotting potential cash flow snags.
Reduce Wasteful expenses
It is not uncommon for companies to initially have some waste and inefficiency. But this needs to be capped. If businesses reduce wasteful operating expenses they can greatly improve margins. Keeping costs down should be ingrained in the staff mentality to limit acting on impulse and restrict unnecessary requests. Cost cutting is unpleasant, but it is better to be cautious than to be sorry.
The business budget is a must for a business of any size and keeping a keen eye on your expenditure will see you in the black rather than the red. Keeping costs under control basically relies on prioritizing the necessities and this is a responsibility which everybody in the company should take heed of.