Entrepreneurs Brief Guide

“How to Prepare Your Budget”

Dr Jim Porter

Planning and preparing your budget helps you to set out the financial targets for your business. Budgeting will help you to prepare in advance for any cash flow problems and helps in comparing your expectations with the actual performance of the business.

In 30 minutes, learn how to:

Prepare your sales and expenditure budget

Prepare financial projections

Review your budget

Copyright

How to Prepare Your Budget

Dr Jim Porter

Revision: SW2.017.001

Copyright © 2011 – All Rights Reserved.

Smashwords Edition

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ISBN: 978-1-4657-5822-4
Publisher: Smashwords, Inc.

Planning and preparing your budget helps you to set out the financial targets for your business. Budgeting will help you to prepare in advance for any cash flow problems and helps in comparing your expectations with the actual performance of the business.

What your budget should cover

As a start up business owner, you will have one overall operating budget which sets out how much money you need to run the business over the next year. Of course, as your business grows, your total operating budget is likely to increase and be made up of several individual budgets such as marketing, sales and IT.

Projected cash flow, carried out on an annual basis, estimates your cash flow for each month. Budgeting in this way is vital to your business, as it can prevent future financial difficulties that you may encounter. Your cash flow status and projection should be reviewed regularly, preferably on a monthly basis.

Your business will incur three kinds of costs:

Fixed costs, covering fixed expenditure such as rent, rates, salaries and financing costs

Variable costs, including raw materials and overtime

One-off capital costs, such as purchasing computer equipment or premises

To project your costs, it is worth reviewing last year's records and contacting your suppliers for quotes.

Revenue forecasts are typically based on a combination of your sales history and future sales and marketing activities. This should take into consideration potential sales from new products and services.

You can prepare forecast profits for the next twelve months by using your projected revenue and expenditure forecasts. This will enable you to analyse your margins and other key ratios such as your return on investment.

Use your budget to measure performance