Many entrepreneurs wait until it is too late to appreciate the benefits of having a budget.
Although budgets are important to be prepared throughout the entire life of your business, it is ESSENTIAL BEFORE starting your business.
You must determine if the business has the ability to cover its business expenses because if it can’t, the business will be broke before it even starts to earn money (generate revenue).
Therefore, the business must be able to pay its own way for its expenses or it will not be able to continue.
It is obvious why this is so important!
What is a budget plan?
Briefly, budgets are used for planning the expenses the business will require and the revenues the business expects to generate.
Simply put as an entrepreneur you must:
• understand the cash outflows (expenses) and,
• understand the cash inflows (revenue) of your business.
Since all entrepreneurs have the same goal: To Be Profitable – it makes sense that a strategy to measure if the business will be profitable must be put into place.
A budget can help to achieve this.
Although budget plans are often considered to be challenging – they are essential and should not be ignored.
The money, the numbers are often considered to be one of the driest parts of a business – some would even say boring!
However, especially if you are a new entrepreneur, you should learn from the start how to have a healthy respect and appreciation for “working with the numbers” in your business.
Focus on the vast amount of benefit and information that budgeting can provide for you.
Is Creating a Budget Plan Difficult?
There is no doubt that budget creation can be very complex. The level of detail, time frames and assumption that can be part of the budgeting process is often difficult even for those well versed with it. However, it is usually larger companies, government and expansive non-profit organizations that need for the budgeting process to be more complicated and involved. They are creating budgets for more than just owners, it is for a number of interested parties and stakeholders that have an interest in the company.
However, there is a difference for new, start-up businesses with regard to their budget. Like business plans, it is not necessary for the small business owner, especially start-ups to prepare overly lengthy and detailed budgets.
New entrepreneurs should have a Preliminary Budget Plan that will include the main financial essentials of start-up for the first year.
The intent of this Preliminary Budget Plan is to get you:
· Understanding the benefits of creating your first budget.
· Feeling “at-home” with creating a budget.
· Committed from the beginning to the habit of establishing and having a budget.
· Feeling in control of how budgeting works.
· Lessening your frustration/anxiety about creating a budget.
Often times it may seem as though everything has been considered, but there can be certain aspects that have not appropriately been addressed from a financial prospective… that can leave you feeling unsure and doubtful of your abilities as an entrepreneur.
Why is it called a Preliminary Budget Plan?
Note there are many formats and versions of budget plans, however they have similar features and are created for the same purpose: to help you determine what the revenue is expected to be in the company, the direct costs associated with generating this revenue and the expenses that are anticipated to be incurred.
Assuming that you are starting a new business and are in the start-up phase, it is not necessary to have an overly detailed budget plan.
It is called the Preliminary Budget Plan as it is a starting point budget that is intended to get you, the entrepreneur involved in the habit of establishing and having a budget, right from the beginning. It is presented in a straight-forward, step-by-step fashion. A Preliminary Budget Plan is also shorter and easier to understand and prepare.
Therefore, this Preliminary Budget Plan provides a minimum layout to get you started!
Here are just some of the questions that a Preliminary Budget Plan should answer when it is applied:
· Measure if revenue is in fact covering your costs
- Make pricing decisions
- Measure the current success of your business
- Foresee problems in your business
· Provide valuable strategic information about your business
+ other financial answers…
A Preliminary Budget Plan is shown in a step-by-step method that allows you to organize your thoughts and WRITE DOWN your intentions through documenting them in a meaningful way. It also provides you with a document to provide to interested parties (for example, banks, investors, etc.) if the need arises.
A Preliminary Budget Plan will help you to:
1. Establish what revenue (sales) the business intends to earn.
2. Establish how much the business intends to spend on direct costs and expenses.
3. Determine if items 1 and 2 above will result in the business being profitable.
For as long as you are an entrepreneur, it is essential to understand the money.
You need to prepare a Preliminary Budget Plan, if you are:
· An aspiring entrepreneur who is serious about properly planning a new business and would like to discover how to prepare a business budget.
· An experienced entrepreneur who never has prepared a budget plan, but would like to learn how.
· An aspiring entrepreneur who is skeptical of a budget plan, but would like to explore the process and know more.
· Any entrepreneur who has heard about budget plans, but are confused and would like some clear DIRECTION of what to do.
So. How Do I, As an Entrepreneur Create a Simple Budget?
Through our process of preparing a Preliminary Budget Plan you will:
1. Engage in strategies that will help you to improve your mindset about money.
2. Help you to focus on the financial intentions of your business.
3. Apply a straightforward, step-by-step process to prepare your Preliminary Budget Plan.
4. Obtain some financial clarity about your business.
5. Feel confident using the “simple elegance” of this process.
What Else Does Creating the Budgeting Plan Offer to the Entrepreneur?
Aside from the obvious, practical benefits that have already been discussed, there are other valuable contributions that budgeting brings to you, the thoughtful entrepreneur:
This notably includes:
- Increased confidence
- Increased decision-making abilities
- Increased ability to assess possibilities
- Increased self-esteem with better awareness
- Increased judgement capabilities
The more you can create, evaluate and understand the money aspects of your business, the more in control and able to make your business all that it can be – it is within your reach!
Remember: these are skills that you will have for the LIFETIME of your business as you will ALWAYS need to consider your business budget.