Catherine Haniff has a wealth of experience in the finance and accounting field. She was the Director of Finance with Spire, the Controller for ekoVenture, Inc., and the Director of Accounting for Vlocity. As a financial professional, Catherine Haniff has extensive experience working with the business budget.
The business budget makes assumptions about the operations and financial needs of the business going forward. A business budget may cover the next quarter or the next several years. Creating a business budget has several benefits, including identifying surplus funds that can be reinvested, predicting demand slowdowns, and preventing unwanted debt situations.
The first step to creating a business budget is to identify the business revenue sources. From this exercise the monthly income for the business can be calculated. Laying out monthly revenue expectations for the next year can help identify patterns such as the possible seasonal nature of revenue, which may be weaker or stronger during different times of the year. This information can then be used in planning both expenses and operations.
After revenue, costs should be recognized, of which there are three kinds: fixed costs, variable costs, and unexpected costs. Fixed costs like rent and leases for vehicles are those costs that remain the same no matter how the business performs. Variable costs are costs that fluctuate depending on the operation of the business. An example of variable costs would be transportation costs for sales people. These costs grow if sales activity increases. Unexpected costs should be planned for by the creation of a contingency fund.
The revenue and cost information feed into a profit & loss (P&L) statement that will reveal which months will likely be profitable or unprofitable for the business.
With the P&L in hand, the budget can now be created. The P&L becomes the basis for determining equipment purchases, expense cuts, and employee hiring or layoffs, all of which go into the forward-looking budget.
The business budget makes assumptions about the operations and financial needs of the business going forward. A business budget may cover the next quarter or the next several years. Creating a business budget has several benefits, including identifying surplus funds that can be reinvested, predicting demand slowdowns, and preventing unwanted debt situations.
The first step to creating a business budget is to identify the business revenue sources. From this exercise the monthly income for the business can be calculated. Laying out monthly revenue expectations for the next year can help identify patterns such as the possible seasonal nature of revenue, which may be weaker or stronger during different times of the year. This information can then be used in planning both expenses and operations.
After revenue, costs should be recognized, of which there are three kinds: fixed costs, variable costs, and unexpected costs. Fixed costs like rent and leases for vehicles are those costs that remain the same no matter how the business performs. Variable costs are costs that fluctuate depending on the operation of the business. An example of variable costs would be transportation costs for sales people. These costs grow if sales activity increases. Unexpected costs should be planned for by the creation of a contingency fund.
The revenue and cost information feed into a profit & loss (P&L) statement that will reveal which months will likely be profitable or unprofitable for the business.
With the P&L in hand, the budget can now be created. The P&L becomes the basis for determining equipment purchases, expense cuts, and employee hiring or layoffs, all of which go into the forward-looking budget.
