What is a budget?
There are different types of budgets depending on what kind of performance measure you want to examine. Here, we’ll define a budget as a projection of how much your company will spend versus how much revenue it will generate over a period of time. Depending on the results, you can then make more informed decisions when it comes to managing your cash flow, allocating money for expenses and setting revenue targets.
Proper budgeting is key to financial success and your peace of mind. Here are a few helpful tips:
- Research the ins and outs of your industry. Is it seasonal in nature? What are the most substantial threats? How easily will your business be affected by changes in regulations and taxes?
- Know the difference between reality and optimism. Both are great things when it comes to running a business, but a budget should be an accurate projection and not based on overzealous targets. You may even want to create “best-case” and “worst-case” budgets to give yourself a safety net.
- It’s okay to keep your budget flexible. In fact, it’s good practice to re-visit your budget often and to make amendments based on actual results versus your projections.
- Maintaining an up-to-date budget throughout the year will help prepare you for tax time. See how Wave’s accounting software can help you create robust and detailed reports – free.