Developing and understanding a business budget is one of the most important aspects of a successful business operation. In fact one of the very first steps you should take is researching your costs to ensure your budget is accurate. Unfortunately, many business owners underestimate the value of cost research. The knowledgeable experts at Mark Dicus & Company have provided the following steps to help avoid making this common mistake.
Step 1 – Cost Estimation & Budgeting
Plan on your costs being more than more than initially anticipated. While we are not suggesting that you spend more we are suggesting that you should always be prepared. Let’s face it, life often throws us curve balls and no matter how careful we are many business owners assume unexpected costs that can completely overwhelm them. A good rule of thumb is to make sure that you have extra money in your budget to cover the cost of well, the unexpected. You can plan for the unexpected by simply overestimating your costs this in turn will ensure that you don’t underestimate your total expenditure. By following this first step you are well on your way to creating a sound budget for your business.
Step 2 – Business Projection & Forecasting
If your business is based around sales and you are providing a service or product forecasting expenses and profit margins can be tricky not to mention overwhelming when you consider all of the variables. For example, the abilities of your employees and suppliers. Be sure to do your research which should include making sure you are receiving a quality product at a fair price and invest in your employees by making sure that they are properly trained. If you believe in your employees and the products and services you are promoting, your customers will believe in them as well. This simple business strategy will not only help you reach your goals, it will also give you a basis to plan and project your business variables as well.
Step 3 – Understanding Profit Margins
Now that you understand the fundamentals of creating a business budget you are ready for step 3. To keep your business in the green you will need to understand two of the most important aspects of a successful business budget – your profit margins and your 12 month projection.
Profit Margin Formula – In order to calculate your profit margins you will need to accurately compile a list of the costs associated with all of the goods and services sold before subtracting the cost and services from you overall sales revenue report. You will also need to take your entire business cost to calculate the gross profit margin for your budget. Understanding your profit margin will allow you to follow the trends of your business model and ensure that your business is successful.
Monthly Financial Projections – In order to understand your monthly projections, the first step is to understand the importance of your opening balance and how this impacts your cash flow. Consider your payment terms along with your payment methods. These numbers will help you determine a 12 month projection to help you track your business and predict your long term success.
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To learn more creating a successful business budget and how it can benefit your business, contact the knowledgeable experts at Mark Dicus & Company today, for all of your accounting needs including business consulting, and tax services.