The economic impact of the COVID-19 pandemic in 2020 has depleted many businesses’ cash reserves. Although many countries reopened after initial shutdowns, some are reimposing restrictions, reigniting concerns around cash flow and the small businesses’ survival. That is why it is important to plan a budget wisely and to optimize cost by adjust its spending and savings throughout the year to minimize the risk in these times.
A budget is a critical financial planning tool, and it is a detailed plan that outlines where you will spend your money monthly and annually. The company’s budget helps forecast what income should be expected, plan where to spend the revenue, and make sure there’s enough money to fund a year’s worth of activities and operations.
The best budget plans are simple and flexible. So if the circumstances change, your budget can flex to give you a clear picture of where you stand at all times. To help you plan it, we decided to share with you some useful tips. Firstly, the budget should include some significant components like the company’s estimated revenues, costs broken down into variable and fixed expenses, the cash flows and income of the company. These numbers are estimated, which you generally create by looking at data from the previous year.
After having all the numbers, it is important to pull it together and get a comprehensive view of your financial standing. Firstly, you will need to tally your total expenses and total revenues. Then use a basic mathematical equation such as income = revenues – total costs to compare company’s “cash flow in” to “cash flow out” and determine business’s overall profitability.
Finally, once you have your company’s profitability, you can think about how your cash flow looks and whether your company needs more funding. It is time to use it, make the right decision for your business, and make some changes or move forward.
It’s crucial when creating your company’s budget that you do your best to make it as accurate as possible. There are numerous ways to do that, including the following:
Be conservative with revenue
Judge the situation subjectively. Many of us at the beginning of the year are too optimistic about the future. When you budget a possible income, make sure to estimate the numbers as accurately as it is possible. If you expect to make huge growth, remember that there is a risk you may not fulfill the expectations and end up with a loss.
This is important to remember. You need to prepare your business budget for unexpected costs that may appear throughout the year. Nobody can predict everything, but if 2020 has taught us anything, it’s to expect the unexpected.
You might want to consider your company’s long-term goals. They are usually really expensive and may take several years to reach. That is why a company may need to start to budget and save for those sooner. It should be determined how much money is needed to realize them and how much money you can spend to save for them based on your income.
Creating a business’ budget is easiest if you have already written one in the previous years. However, if you haven’t had such an opportunity, do not worry. In the modern world with advanced technology and the internet, there will be no difficulties for you either. There are many financial software, budget worksheets and templates available online. Moreover, you may consider downloading a budgeting app to make it a little bit easier for you. Popular examples are Mint, YNAB, and others.
When you know everything you need to plan your company’s budget, what are you waiting for?
Creating a budget will give you many advantages such as managing the company’s money effectively, monitoring the performance, meeting the company’s objectives, definitely improving decision–making and most importantly, it will help you to identify the problems before they occur!