Have you ever overshot a budget? Have you ever miscalculated your expenses or your potential revenues to an extent that the whole financial plan went haywire? Every entrepreneur and employed professionals are vulnerable to make errors when formulating a business budget. It takes experience, time, research and a lot of thinking and rethinking, calculating and recalculating to come up with that perfect business budget. In here we shall talk about a few smart ways how you can improve your budget, not financially but from the perspective of accuracy. Here is a summary to the key points shared in the above infographic.
1) Do You Know Where Your Money Goes?
You need to factor in expenses first. Many people focus more on revenue and some even consider that the expenses are not that daunting if the revenues are ensured. It is true that should the revenues be generated as expected, the expenses don’t matter as they will get taken care of. But you cannot start on a hyperbole of optimism. You need to start with your liabilities first. Calculate fixed costs and variable costs to know your expenses.
2) Cutting Costs Doesn’t Always Help.
Always be lenient or generous with the expenses. Do not try to cut costs at the time of budgeting. This will lead to conservative estimates of expenses and that is never wise. Have more room than you need and you would be pleased in the end. You will also be able to afford some gaffes and mishaps in the process. Be conservative with the revenues.
3) Calculate Your Gross Profit.
Many people focus on the gross profit and get content. The gross profit is not what matters. The net profit does. So don’t be too pleased if the gross profit is substantial. You need to factor in all the taxes and recurring capital buildup among others.
4) Make Any Necessary Adjustments.
This is the part that many people skip. You need to adjust the budget to factor in some clients or customers that wouldn’t pay or would delay the payments. Then there will be unreliable vendors or partners that may change their pricing or what they offer you. All this will have a direct bearing on your cost and revenue, thus the gross and net profits. Not accounting for such adjustments may make your budget irrelevant.