What is a budget?
A budget is an estimation of revenue and expenses over a specified future period of time and is usually compiled and re-evaluated on a periodic basis. Budgets can be made for a person, a group of people, a business, a government, or just about anything else that makes and spends money.
Budgeting is the process of creating a plan to spend your money. This spending plan is called a budget. Creating this spending plan allows you to determine in advance whether you will have enough money to do the things you need to do or would like to do. Budgeting is simply balancing your expenses with your income.
Why is budgeting important for start-up business?
You probably know that developing a start-up budget does more than just prevent financial mishaps. It helps in making well-planned and informed financial decisions, which is why it is often regarded as the most important step in running a business. As a start-up owner, there are a lot more reasons you need to allot time for budgeting. Let me run you through some:
- Provides an idea on when to recruit employees.
- With a regular budget, you can finance to scale by using real-time business data. This avoids early fundraising and over-borrowing.
- A better estimation of your break-even point so you know exactly when to adjust necessary variables.
- Making predictions of cash shortfalls becomes more accurate so you can line up funds accordingly.
- Generate precise financial statements to share with investors or lenders.
HOW TO BUDGET FOR MY START UP BUSINESS
The specifics of your budget will depend on your personal financial situation and goals. In most cases, though, the steps for creating a budget are the same. You can make a budget by following seven simple steps.
- Add up your total income.
This should include all sources, such as a pay check, tips, Social Security, disability, alimony, or investment income.
- Track your spending.
Spend a month keeping track of everything you spend, whether you pay with a credit card or cash, to find what your real expenses are. Be sure to include automatic payments, subscriptions, and utilities.
- Set financial goals.
Do you want to save money? Pay off debt? Stop overspending? Decide on realistic goals. Remember, you can adjust these over time. Pick the most pressing goals, such as paying off debt or creating an emergency fund, first.
- Calculate mandatory expenses.
These are expenses you must pay each month, such as rent, insurance premiums, taxes, childcare, or your cell phone bill. Subtract these from your total income.
- Identify debt payments.
If you are paying off debt, such as student loans or a credit card bill, find the minimum payment for each debt. Subtract that from your income as well.
- Make a spending plan.
The amount of income you have left is what you can spend on discretionary expenses. These can include your goals, such as debt payment or savings. It should also include things like groceries, entertainment, gas, or surprise expenses. Give every dollar a job, based on your goals and what you discovered when you tracked your spending.
- Adjust each month. Each month, look at your spending and goals, Reevaluate and adjust where you assign your discretionary spending. A flexible budget will help you avoid overspending.