Patrick Maddren: Budget is key to business success and here are the ways to create it

Patrick Maddren how to run a business is a lesson that small business owners learn in their own ways. Many have it in them that receives the stamp of formal learning for those who pursue some course in business management. Regardless of what they teach in business schools, it is common knowledge that every business must have a budget or at least some fair idea about the finance needed to run the show. Budgeting is a crucial exercise because it is the starting point of any business that sets the revenue target to achieve for maintaining a healthy bottom line.

The exercise consists of matching expenses with revenue (earned or expected) so that Patrick Maddren business owners can understand if they have enough money to run the operations, generate profit, and plan for expansion or growth. Nor having a budget can render the business rudderless that ends in spending more than earning or spending less than what is necessary to facilitate growth.

Here are the steps to follow for creating a business budget that works.

Follow the industry standards

Despite many differences between businesses, there are some similarities too. Know about the ways that have become a standard that the industry follows for creating a business budget. The internet is an excellent source for information, and you can talk to some local business owners, check the IRS website or the local library to gather an idea about what percentage of revenue to keep aside for allocation to cost groupings. Instead of looking for specific figures, follow the industry average that can take care of an unexpected downturn that small businesses often experience.

Use a spreadsheet

Use a spreadsheet to tabulate the figures related to allocating costs by estimating the total money available and its percentage allocated towards various cost heads like raw materials and other costs. Repeat the same exercise for the overhead costs like rents, insurance taxes, etc. Knowledge of different types of budgets for small businesses and the way to create and implement it should be of good help.

Have some margins

The budget is all about what you foresee and subject to change. The kind of revenue you expect to generate or the expectation of certain expenses remaining fixed or that can be controlled might all change with time. To accommodate the changes to some extent, you must work out the figures by adding some margins to it so that you have enough financial reserves or would likely generate from the inflow of revenue before you allocate for business expansion or increasing the workforce.

Focus on cost-saving

Cost-saving is an essential aspect of budgeting because it helps to increase revenue during tough times. It generates an added stream of revenue that can come in handy to meet the immediate expenses of paying bills or for capitalizing on business opportunities that suddenly crop up. Look for big-ticket items that have greater potential in saving cost. Making purchases at the beginning of the billing cycle allows taking advantage of the payment terms offered by creditors and suppliers.

Interim review of the budget helps to fine-tune it by making changes based on more realistic assumptions.