A bigger percentage of businesses that fail cite financial mismanagement as one of the leading contributing factors. One of the main remedies for financial mismanagement is creating a budget. A budget goes a long way in constraining spending, ensuring there is enough money for the running of your business operations, as well as ensuring the business has savings.
Creating a budget for your business prepares and arms you for unseen circumstances in the future that would be detrimental to your business without a financial cushion. In a similar vein, budgeting creates a cash cushion for your business, which makes it easy to implement strategic decisions which may require money such as expanding your business and hiring new staff or purchasing new equipment. To create a workable budget, it is imperative to ensure that all your business expenses are listed and categorized for ease of tracking. Further, it is important to ensure that your budget is at par with your company’s goals and vision.
This checklist evaluates important elements to consider when creating a budget for your business.
Step 1 – Analyzing Costs
1 Have you researched your business’ operating costs?
2 How flexible is your budget?
3 Does the budget factor in fixed and variable costs?
4 Does the budget consider unexpected and one-time costs?
Step 2 – Estimating Revenue and Sales
5 Are your revenue estimates realistic?
6 Are you tracking your revenue periodically?
7 Are your sales projections realistic and accurate?
8 Are your projections based on previously recorded sales and revenue?
9 Do your estimates project industry averages?
Step 3 – Projecting Cash Flow
10 Is there a balance between your customer payments and vendor payments?
11 Is there cash allocated to offset bad debts in your budget?
12 Is your projected cash flow realistic?
13 Is your cash flow monitored on a regular basis?
Step 4 – Identifying Profit Levels
14 What are your profit margins?
15 What are your business’ expenses?
16 Have you eliminated expenses that are non-beneficial to your business?
Step 5 – Factoring in Season and Industry Trends
17 What are your profit margins?
18 What are your business’ expenses?
19 Have you eliminated expenses that are non-beneficial to your business?
Step 6 – Leveraging Tools
20 Are you using a budget calculator?
21 Have you considered applying the budget worksheet and spreadsheet?
Notes:
- Overestimating your costs is advantageous for the purposes of cash flow management
- Avoid overestimating revenue to mitigate borrowing cash for your operational needs
- Update your budget regularly
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