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How to create a business budget plan in 14 steps for January 2016

by , 01 October 2015
January 2016 is just around the corner, which means you need to start planning ahead. But before your business can make money next year, you need to plan how to spend it.

Drafting a budget is the only way to help you turn your dreams for your business success into reality. Without one you won't know how your business is performing from year to year.

Read on as I explain how to create a budget in 14 steps for your business and create a business roadmap to success.

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14 Steps to prepare your budget

Step #1: Establish and communicate the details of your budget policy by:

·         Deciding what sort of profit or profit percentage you want for the year ahead;
·         Determining what you want your target mark-up or gross profit percentage to be;
·         Setting limits on borrowing or capital expenditure;
·         Establishing what's expected to be happening in the economy – will it grow or shrink in the next 12 months; and so on. 

Step #2: Get the opinions of everyone who can give valid input to the budget. The most effective way of starting the 'budget ball' rolling is to bring together anyone who is going to be evaluated by the budget, and anyone who can contribute to the budget.

Step #3: Decide on sales and production volumes for the budget period;

Step #4: Decide on your products' or services' selling prices;

Step #5: Establish what your expected costs for your most important inputs are. E.g. labour, materials and significant overheads;

Step #6: Select an appropriate inflation rate, if any, for the remaining costs. Remember to always compare the number you choose with the inflation rate in the current period!

Step #7: Provide the relevant elements of this information to anyone involved in the budget process. So everyone will be on board.

Read on for seven more steps to creating your financial budget.

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Step #8: See if your outputs are limited, e.g. you get all your raw materials, at the right price and quality; and if you have sufficient skilled staff.

Step #9: Prepare your sales budget. Your sales budget is the key to the entire budgeting process because it drives your production and most of your expenses and, ultimately, your profit.

Step #10: Prepare the subsidiary budgets.

Step #11: Get all the people who have to implement the budgets to agree and give you their buy-in to your budget.

Step #12: Put all the separate budget pieces together and you'll have a budgeted income statement, a budgeted balance sheet and a budgeted cash flow statement.

Step #13: If you operate as a company, get board approval for the budget – this is good governance and will help in complying with the Companies Act. 

Step#14: Install a process that reviews the budgeted results with actual results each month and so you can amend the budget if you need to.

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