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Tips for managing your budgeting process
One of the most important things to realize is that a budget not only balances the debits and credits, an effective budget should also include your goal for a net profit during the year.Your goal is not just to break even is it?If it is, you will do better to invest your money in a low risk and low interest money market account.If you have gone into business, your goal is probably to make money.So, a big portion of your budgeting process should be accounting for net profit.
Once you have forecasted your profits you need to consider the expenses that will be associated with those profits.It takes money to make money and the more you are going to profit, the more you will have to finance those profits up front.Determine the operating cost and the material costs that you will incur to make the profits you have predicted.You should also consider bonus that you will pay to employees for helping your achieve your profit goals. Estimating the fixed costs for operating your business is the easiest step in budgeting.Most fixed costs are easy to estimate from year to year because they don't change much.Your rent is likely to stay the same, utilities may go up but not noticeably, your will probably give raises to you employees every year, so you might budget for a 5% increase for every employee.Once you have the fixed costs nailed down, add them to the operating expenses.This is your total expenditure (minus one time expenses like a new computer). Balance your budget in a way that will yield the right figure on the bottom line.If you discover that you need more revenue to meet your profit goals you can adjust the budget.Don't be afraid to adjust your budget, it is a part of a healthy budgeting process.The trick is to adjust the budget while leaving the bottom line intact.Ways that you might adjust your budget include reducing expenditures and expanding sales. There are really only three main factors in your budget.Expenses, which you can control, are the easiest things to adjust.You might hire fewer employees, purchase a less expensive work truck, or go with out the new security system.Sales are less easy to control but you can focus on sales and, hopefully increase them.The profit is the budget factor that you are aiming at.Changing the profit goal leaves you room for more expenses and less sales but at what cost?If you have a profit goal, this should be the prize.Adjust all other factors to be able to keep your "eyes on the prize".Your last resort should be adjusting your profit goals. |
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