Make a 'perfect' budget to start a business, here is a guide of 6 steps

It is very important to make a strong budget before starting a business. With the right planning, expenses can be controlled, profit can be planned and a clear roadmap can be prepared for the future. Learn the guide of 6 important steps here.

It is a completely wrong step. Actually, making a strong budget for any business is very important for its success. Budget is not just about tracking expenses, but also about preparing a clear financial roadmap for the future. So let us understand what 6 things should be kept in mind while making a budget for business.

1. Analyze the revenue

First of all, you have to identify all your revenue streams. You must analyze the data of at least the last 12 months. You should see how the monthly income of your business fluctuates and whether any seasonal pattern has come into play. For example, income may increase during the holiday season, while it may decrease in summer. Only by understanding this, you can estimate the income for the coming months.

2. Reduce fixed costs

After estimating the income, you should reduce your fixed costs. These are the expenses that do not change with the activity of your business, such as rent, salary of employees, insurance and property loans. These expenses remain almost the same every month or year, so they can be easily reduced.

3. Reduce non-essential and changing expenses

While making a budget, reduce non-essential and changing expenses. These expenses keep changing with the activity of your business. So as production or sales increase, these expenses also start increasing. These include the cost of raw materials, wages of hourly employees, etc. If you want, you can also estimate them using past data.

4. Create a contingency fund for emergencies

While making a budget, it is always necessary to keep some money aside for unexpected expenses. This is also called a contingency fund or emergency fund. This amount comes in handy when some important thing used in the business suddenly gets damaged or some other unexpected expense arises. In such a situation, instead of spending the extra income immediately, it would be best to deposit it in this fund.

5. Understand your benefits

While making a budget, deduct all fixed and variable expenses from the total estimated income. The remaining amount is your net profit. If it is positive then it is profit, and if it is negative then it is loss. Compare this figure with the old benefit, so that it can be known whether the estimate is correct or not.

6. Review the budget

The budget is not a fixed document. It is important to review it every month or quarter and adjust it as needed. When your income increases or expenses change, you will also have to make changes in your budget. Compare your true performance with your budget and then see and understand where you are doing well and where there is a need for improvement at the moment. By doing regular review, you can keep your financial target on track. (Note: This article is for information only and should not be considered as investment advice in any way, suggest consulting financial advisors for investment)

5 FAQs with Answers

Q1. Why is a business budget important?

Ans. Business budget is necessary to control expenses, plan profits and ensure financial stability.

Q2. What is the first step in making a business budget?

Ans. First of all, a list of estimated income and expenses should be made so that cash flow can be estimated.

Q3. Is it necessary to make a budget for small business as well?

Ans. Yes, budget is even more important for small business, as smart financial management is necessary with limited capital.

Q4. How to add savings and investment in business budget?

Ans. Every month a part of the profit should be kept aside for savings and re-investment.

Q5. How often should the business budget be reviewed?

Ans. The business budget should be reviewed every month so that changing expenses and income can be adjusted properly.