Drafting a budget is easiest if you were a commerce student. But if you’re reading my article, the odds may be that you’ve never written a budget for your business before. In that case, read on.
Your target is sales and profits and that is all you need. Start by deciding a target for your sales revenues, advises SCORE, so you can grow and succeed. For a startup business, you must begin by estimating what type of real profit you’d like to see in the coming year. If you have been in business for a while, take your company’s most recent financial statements, ledgers and use them as the basis for developing your sales and profit targets. The reason you start with sales or profits is because this information will help drive the rest of your estimates for costs, expenses, and expenditures. Take into considering factors that might affect your sales, or loss of a major customer. But relax, the basic idea of budgeting is that the sales or profit figures will never turn out to be exactly right.
Start with calculating operating costs. A good place to start, once again, is the financial statements of your old firm. These statements should include a list of the fixed and variable expenses you incurred during the year, salaries and wages, rent, research & travel, utilities, taxes, etc. When starting out, you are going see more of expenses and an average profit.
Second, Figure out gross profit margin. Again, this is much easier if you’ve been in business for a while or you have a commerce background. In that case, estimate the cost of your goods sold beginning with inventory, goods purchased or manufactured, shipping charges, etc. & subtract that from your overall sales revenue.