A good business budget requires careful forecasting of revenues and expenses.  But just like weather forecasting, sometimes the prediction is completely accurate, and other times, rain arrives when the revenues should have been sunny.  Though small business forecasting is akin to predicting the future, it is performed in an analytical and procedural manner to ensure that the forecast is as accurate as possible.

What is Small Business Forecasting?

Small business forecasting occurs when a business owner or leader includes his or her vision and strategic thinking, alongside historical facts and data, to ensure the continued success of the small business.  Forecasting means looking forward while focusing on the present.  And while a business owner always hopes for the best, it is much more important that small business forecasting include reasonable projections.  This is important for effectively managing a small business.

Creating a business budget from small business forecasting provides the owner and other managers a solid blueprint on which to achieve the encompassing business strategies.  Business budgeting should include forecasts of all revenue from sales, as well as expenses.

By accurately projecting revenue and expenses it will help the small business owner realize whether other types of financing will be required to maintain consistent cash flow.  For instance, if revenue projections shortfall the total expenses, even if narrowed to a seasonal portion of the budget year, a loan may be required to keep the business operating.

Tips for Business Budgeting

Business budgeting and forecasting can be accomplished using historical data.  In most cases, a preliminary budget is prepared using previous and current fiscal year’s financial information.  For instance, say a small business realizes an average of 4% revenue growth over the last three years.  Small business forecasting can use a 4% growth projection for the next fiscal year’s revenue figures.

Expenses are usually determined as a percentage of gross sales.  For instance, if previous year’s marketing expenses were 15% of total sales, the forecasted business budget could use that same percentage of the expected revenue.

Although using historical data is important in small business forecasting, it is also vital that small business owners and managers consider all possible factors for the coming fiscal year.  Sales slumps due to economic factors are a good example of a serious consideration.  Also, industrial trends, demographic changes, regional characteristics, and new competitors may be important issues to consider when preparing business budgeting.

The continued success of a small business depends upon the accuracy from credible small business forecasting.  Knowing how much you anticipate to make in the future can help you decide how to invest and utilize your funds today.

What is a Business Budget?

A solid business budget is a blueprint for how a business will take in revenues and spend money on expenses for a certain future time period, usually a full fiscal year.  Business budget planning requires strategic financial forecasts and solutions.  During budget planning sessions, detailed and itemized financial figures are developed using historical data and accurate forecasting figures. 

Most existing businesses have a good start on business budget planning since they have historical figures to utilize.  Using business budget spreadsheets, they can see the historical increase (or decrease) in sales, and even see where too much money was spent on particular expenses.  These historical figures are a good starting point for business budget planning. 

Why is Business Budget Planning Important?

Effective business budget planning will inform a business owner where expenses need to be cut, and whether new ways to make revenue are needed.  Business budget planning also will reveal whether outside financing will be required to maintain a positive cash flow.  Ultimately, it will guide the business owner and managers on how much money should be spent on particular expense categories, and provide revenue goals.

Business budget planning is important particularly in these three areas:

• Sales – How a business brings in cash is essential for planning expenses.  Sales forecasting is a similar to predicting the future, but with better accuracy than a crystal ball.  Previous sales data can provide a good idea of how much percentage increase or decrease of revenue is expected in the coming fiscal year.  Sales forecasts on business budget planning will also detail a strategy of how a business plans to increase revenue.
• Expenses – A business needs to spend money to make money.  The expense budget will guide for limiting expenditures and should be followed religiously.  Historical expense data can guide business budget planning figures and can reveal excess expenditures.  These figures can also guide a business owner on how to cut expenses for the coming fiscal year.
• Capital Expansion – In order for businesses to grow, they usually need capital expansion.  That means buying new buildings, new equipment, and spending more on production costs.  Business budget planning should include any strategic capital expansion plans and the strategy for financing the expansions. 

Business budget spreadsheets are great tools for business owners to use in business budget planning.  Whatever tools are used, it is important to remember that proper business budget planning requires time, strategic thinking, and vision in order to complete a viable and accurate financial guideline.

Business budgeting is a regular process and one that must not be rushed or unprepared for. Of course by this stage, now that your business is established and ready for further development you will have already planned your business and are diligently following the plans you laid out many months, perhaps years ago.

Creating a business budget spreadsheet will assist you in keeping track of your business finances and ensure that you stay within the limits you originally set out in your business plan. If you haven’t approached the budgeting of your business thus far in your development, it could be argued that is a grave mistake. If that is the case, immediate action needs to be taken to ensure that you know what is viable for your business to have going in and out of your business budget. This is important as you don’t want to overstretch yourself or indeed leave too much sitting in the bank without investing it into your business and putting it to good use.

It is very easy to get bogged down when you first start a new business on the daily routines of running your new enterprise and forget about the bigger picture and how it may affect you in the future. Successful businesses and entrepreneurs will invest the time to create adequate cash flow budgeting techniques well before the time it comes to actually using the budget itself. It’s important to note that this isn’t a onetime thing – business budgeting is an iterative process that needs careful attention throughout the lifetime of your business.