If you are looking to begin a home based business, then you need to have a monthly, if not a weekly budget in place. Many start-ups think that having budgets means more paperwork. That’s not true. A home based business needs to understand its cash flow and funds as well as any expenditure to ensure that it has a rosy future and doesn’t go bust. Understand that your home expenditure and business expenditure need to be different. You can’t be taking funds from your home budget to finance the home based business. Budgeting ensures that you have the financial confidence to make decisions and helps prepare you and your business for the future.
Identify your objects and the sales that you intend to make each year and then segregate it by the month.
This will give you good cash flow for the entire year and these are the funds that you need to work with each year. These are the figures that potential investors and bankers will look at while offering fresh funds. Budgets will incorporate the costs, expenditure and the revenue also. Get information from previous budgets. The figures will be based on profit & loss statements and balance sheets. Various financial ratios will help to ascertain the liquidity and the use of resources in the business.
The Sales budget
Know the sales budget of the various projects. This will also help to know how well the product / service is doing. Changes can be made to ensure that the product sells as per the projected forecast. Business plan can be changed too. The selling price of the product can be changed or some costs can be cut to bring the selling price of the product / service down.
The Credit sales should also be clearly mentioned. Have a credit strategy. This means that you need to get the cash from the customers; which, in turn, means that the customers need to pay within a reasonable credit period. As a small home based business, it can be quite harmful for the business if those credit sales are not eventually converted to cash sales.
Staff & Capital Expenditure Budget
This will come in handy when the business begins to expand. Mostly, this type of a budget is made by manufacturing units. Also, bulk purchasing will always lower the costs.
Staff Budgets
This is the number of employees that the business employs. To start with, there would be just the owner, but as the business grows, employees would need to be taken on. The staff remuneration as well as any possible commissions needs to be figured.
Overheads budget
This is variable depending on the amount. Electricity, phone bills, gasoline bills, printing costs, advertising, etc. depend on the amount used every month.
The budget variances
Every budget will have a variance. If the variance is too big, then the strategy needs to be changed. If more units are been sold that budgeted for, then the budget needs to be pushed up for the product. Variances and reasons for the variances need to be taken into consideration and the next budget changed accordingly
Budgets help to meet the targets and make the business profitable. Don’t overlook their benefits! |
| Cash Flow Management |
| Cash flow management is the process of managing, analyzing and controlling the cash flow of the business. It is one of the most important aspects of managing a business as this can help avoid a whole set of problems. Read More |
