Budgeting for Business ICEV

Budgeting for Business ICEV

by Tylo Bader

​You will be able....

• To understand the importance of budgeting

• To identify the parts of a budget

• To describe the process of creating a budget

• To create and implement a budget​

​Budgeting

• ​Is the allocation of monetary funds based on a determined structure

​Budgets

•Are the blueprints for execution and organization of revenues and expenditures

•Are specific plans for how you spend and save money

•Are numerical records which express anticipated results for a specific time period

•Are used as a planning guide and control device​

​Reasons for

​•Provides company or personal financial stability

•Generates a map of financial practices

•Guides efficient business decisions

•Establishes a profit or projected goal

•Controls expenses, debt or liabilities

•Prepares for emergencies and savings

​Reasons for Budgeting

​•Helps monitor the following:

−assets and liabilities

−investments

−savings and expenditures

−profit and growth

​Additional Benefits of Bud

​•Improves credit scores

•Lowers fees or interest rates

•Provides financial stability or enhanced wealth

•Prevents impulse or unneeded purchases

​Basic Parts of a Budget

​•Includes:

−income (accounts receivable)

•sales

•investments

−expenses (accounts payable)

•fixed

variable

​Gross Income

•Is the amount of income received before costs of goods and taxes

•Is also known as “pre-tax” income​

​Net Income

​•Is the amount of income after costs of goods and taxes are deducted

•Is also known as “after-tax” income

​Creating a Budget

•Includes:

−tracking spending

−gathering financial records

−listing monthly income

−listing monthly expenses

−balancing the budget​

​Track Spending

•Keeps receipts for all purchases and expenditures

•Maintains a record of all checking account withdrawals

•Saves cash-spending records​

​Gather Financial Records

•Before a budget can be set, an examination of past financial documents must occur

•Use financial records for the previous six to 12 months to estimate income and expenses for the future​

​List Monthly Income

•Ask the following questions:

−where does the money come from

−how much money comes in every month

•List all categories of income (sales or investments)

•Determine the gross monthly income by adding all income together

•Subtract the cost of goods sold from gross monthly income to determine the net monthly income​

​List monthly Expenses

​•Ask the following questions:

−what expenses are the same every month

−what expenses are necessary but vary each month

−what expenses are unnecessary

•List all categories of expenses

•Divide list of expenses into two categories:

−fixed

−variable

•Eliminate unnecessary expenses

​Fixed Expenses

•Remain the same regardless of business activity

•Stay constant for a specific period of time

•Examples include:

−rent

−insurance

−equipment leases

•Create a subtotal for fixed expenses by adding all fixed expenses together​

​Variable Expenses

​•May change or fluctuate

•Are sometimes hard to predict

•Can be adjusted based on current circumstances

•Should include a miscellaneous category for unexpected expenses

•Examples include:

−cost of supplies

−advertising expenses

−utilities

•Create a subtotal for variable expenses by adding all variable expenses together

​Balancing the Budget

​•List the net income

•Add the fixed and variable expenses together to find the total expenses

•Subtract the total expenses from the total income

•Net Income – Total Expenses =

−if negative, a loss has occurred

•find ways to decrease spending or increase income

−if positive, a profit was made

•move extra money to savings or miscellaneous account

​Tips for Maintaining a Budget

​•Exercise self control and frugality

•Develop an easy-to-use record system

•Update and modify budgets weekly or monthly

•Evaluate spending habits on a daily basis

•Identify successful consumer habits

​Increasing Savings

​•Make saving a priority

•Set a savings goal

•Pay yourself first by putting aside a set amount

−experts suggest 10 to 20 percent of gross income

•By preparing an automatic account deduction

​What is Your Business Worth

​•Owners need to know how much their business is worth

−for additional purchasing and growth opportunities

−to evaluate the financial health of a business

−to plan for future business

​What is your Business Worth

​•A business’s worth is determined by evaluating two main factors

−assets

• items of ownership convertible into cash

−liabilities

•money owed; debts

​Assets

​Include

• ​Cash

• ​Equipment

• ​Buildings

​Liabilities

​Include

• ​Equipment Loans

• ​Charge Accounts

• ​Rental fees

​Net Worth

•Is the difference between what is owned and what is owed

  Net worth = assets - liabilities

•Is the most important factor when assessing a business’s financial strength​