Budgeting and Forecasting for Your Business

When you’re running a business, it’s easy to get bogged down in the day-to-day operations at the expense of more strategic issues like annual budgeting and forecasting. Investing the time to create a structured financial plan can help you pave the way for improved fiscal performance.

You may be tempted to think no one knows your business better than you do, so why bother with a formalized budget or forecast, especially if your business is profitable. While it is possible to have a good understanding of your business without a plan, not having the proper structure in place can make it nearly impossible for your business to create an accurate picture of annual projected income and expenses.

An annual budget and forecast can help you prepare for the inevitable ebb and flow of sales. This is a particularly important step if cash flow in your business can vary greatly during the year, such as with landscaping or salons. It can also help you identify ways to improve efficiency or profitability. For example, it may help you uncover a new opportunity to grow your customer base or capitalize on a competitive advantage.

Here are a few questions that can help you get started on building a solid budget and forecast for your business. If you’re having a hard time answering some, refer back to previous tax returns to measure past performance.

• How much can your business sell in the next year?
• How much will it cost to produce your goods or services?
• What are your operating expenses?
• Is your business seasonal?
• How much will you charge for your goods or services?
• Do you have proper business insurance coverage, and what does it cost?
• Does your business need to hire additional employees? How many and what will you pay them?
• How much will you pay yourself?
• How much will taxes cost (i.e. payroll, unemployment)?
• Will you need to borrow money to improve your business (i.e. new equipment)?

Planning for your business is always a good idea. If you have not already started your budgeting and forecasting, it’s not too late—in fact, it’s never too late to get a better handle on your business.