Budgeting For A New Business

Budgeting For A New Business
By: Ekwo Umoh

It is a common problem trying to establish a budget for a new business. Without any financial history on which to base income and expenses, it may seem like guesswork, but as part of any business plan, it is necessary to have a tentative budget as a guide for the future. You may be courting disaster if you do not carefully plan your budget before starting your business. It really is like putting the cart before the horse.

In every business, there are two components, income and expenditure. Under your expenditure category, there can be several sub-categories often falling into two main areas of controllable and uncontrollable expenses. While many business owners may try to control every expense involved in their business, they are often not successful as some things such as utility costs, rents and other so-called fixed costs could change with the owner having no control whatsoever. If you are prepared for these items you will have a better chance of being able to pay all of your bills at the end of the month.

There are other expenses such as payroll, insurance and advertisement which are subject to a budget because they are considered controllable. This is because it is possible to make adjustments if need be depending on the performance of the business. For instance, it is possible to reduce your advertisement cost or lay-off employees if the business makes a down turn. However, budgets are mere estimates and should not wear down any business if there is need to increase or reduce it to enhance profitability.

One sure way of operating a successful business is to pay attention to the correct level of staffing. You must engage sufficient number of personnel to ensure that customers are satisfied with your services. And to obtain optimum performance from your staff, they should be well remunerated and motivated. In other words, a good budget should make adequate provision for reasonable workers wages. There is no need trying to limit the size of the labour force to save cost and in the process take upon you the task of performing too many duties. .

There are two ways to budget for your business and that is through fixing amounts for the controllable expenses and targeting a percentage of the income for the non controllable expenses. Obviously, the aim should be to match your income to the controllable expenses in such a way that there is sufficient room for profit and to take care of the non- controllable expense. This way, your business should be worth the trouble.

There is no hard rule concerning budget implementation. Discipline is the word if any budget is to be successfully managed. For example, a company earning $20,000 a month as income and has budgeted six percent for payroll, could adjust that level if the scope of business increases substantially and the revenue correspondingly increases to warrant the engagement of extra personnel to cope with the increase.

While a budget may be difficult to establish for a new business, it is a necessary evil for all business owners.


--------------------------------------------------------------------------------
About the Author:
Umoh Ekwo is a home business consultant and writes on a variety of topics. To see more of his articles, please visit: