Corporate Finance Budgeting
Basic Tips on Budgeting
Budgets are easy to prepare contrary to popular opinion. People think it is hard to do since it needs some amount of thinking time. Regard a budget as a useful business tool that can make or break a business. This is financial plan that is written down to keep an accurate record of the goals and to measure objectively the progress along the way. Make a start by coming up with a sales revenue target or projection. It should be realistic and based on the foreseen or existing market conditions. Sales forecasting is the starting point for any realistic business planning. Budgeting makes forecasting easier. Make it your best estimate.
How to Finance BudgetÂ
Based on past experience, estimate your cost of goods sold (e.g., 70 percent of sales) and subtract it from the sales revenue to come up with your estimated gross margin. Forecast variable expenses (items such as travel and commissions that vary according to the level of sales) and fixed expenses (items like taxes and rent that stay the same, regardless of sales). The only hard part is the estimation of the variables.
Deduct these expenses from your gross margin to arrive at your estimated net income (before federal taxes). Other items to be deducted from the gross margin are utilities (light, water, power) and salaries and wages (a fairly accurate estimate can be derived based from prior months payout patterns). Consider budgets as mere guideposts as you travel along the financial highway.