How to Prepare the Annual Budget for a Company in 15 Steps

by OverHeadWatch Team | Dec 15, 2017 | Budget Planning | 0 comments

Preparing an annual budget for your business is not as easy as it may seem. Not everybody has the skills or the patience to create and manage a budget on their own. Luckily, there are other options as well: hiring an accountant, a bookkeeper, a CFO, etc. If, however, you want to handle this on your own, today we are going to learn how to prepare the annual budget for a company step by step.

How to Prepare the Annual Budget for a Company 101

Estimating Expenses

1. Find Ways to Estimate the Expenses

The first thing you need to do when learning how to prepare the annual budget for a company is to estimate the expenses for the coming fiscal year. Most likely, if It isn’t your company’s first year, you already have real figures for it, such as the yearly rent, the salaries, etc. For other elements, such as utilities, telephone, and so on, you will need to make an estimation. It’s important to try and be as accurate as possible. Remember to include a Miscellaneous category, for unexpected expenses.

2. List the Estimated Expense for the Absolute Necessities

A brief list of this step would be the following:

Salaries and wages;
Fringe benefits;
Rent/mortgage payments;
Phone service;
Utilities;
Internet provider, server costs;
Insurance, etc.

Of course, this isn’t a complete or compulsory list. It all depends on your business’ needs and previous expenses.

3. List Expenses for Supplies and Equipment

This is one of the easiest steps you need to take when learning how to prepare the annual budget for a company by yourself. Simply make a list of the supplies (such as software, pencils, paper, educational materials, post-its, etc.) and the equipment (computers, copiers, fax, peripherals).

4. List the Expenses for Anything Else

There are still expenses that weren’t mentioned in the above categories. For example, think of loan payments or consult services. The annual audit, bookkeeping services, payments made to other organizations for certain services, and so on. Include transportation, postage, printing and copying, etc. Think of absolutely everything you spent money on until now. If you need some inspiration, check the bills and receipts which you (hopefully) keep.

5. List Expenses You’d Like to Afford

Now is the time to think about the expenses you’d wish to afford. You may not have the finances for them yet, but it’s useful to have a list of them. Include here new programs, staff positions, supplies, more space in the office, useful equipment, etc.

6. Add All the Expenses

Add all the previous expenses you listed until now. The result is the projected expense you have for the coming year.

Estimating Income

7. List the Figures or Estimates from Funding Sources

Do you have any source that has already promised you money for the next year? Or a regular funding source? If so, you have some previous figures to add to the list. Think of federal, state, or local government agencies, United way, religious organizations, corporations, private and community foundations, etc.

8. Estimate Fundraising

If your company does this, it’s time to estimate the amount you’ll raise with this method in the next fiscal year. In case you haven’t done this before, you could consider starting it next year. Try organizing community events, concerts, media ads, or phone and mail requests.

9. Estimate Charging Fees or Selling Services

For the companies who charge fees or sell services, you need to estimate the amount that will come from these activities as well. Include consulting services, training materials to be sold, etc.

10. Estimate Yearly Dues or Fees

If you have any members who need to pay yearly dues or fees, estimate the total amount as well.

11. Estimate All the Other Expenses

Besides the few we listed above, there are some other sources of income you need to consider, such as:

Subletting or renting space;
Investments (endowment income, interest income, annuities, etc.);
Any other source of income you have.

12. Add It All

Make the total of all the income sources you previously estimated. This is the projected income you have for the next fiscal year.

Creating the Budget Document

13. Use an Organized Format

Regardless of your numbers, you need to select a useful format to organize them. A spreadsheet is the best option here. Set a list of funding sources on the top edge, and the expense categories on the left-hand edge. Thus, you can assign some restricted funds to proper categories. As such, you can see how much money can you use for each of the expense categories you have.

14. Compare the Total Expenses to the Total Income

There are three terms you need to know when comparing these numbers:

Budget balance – the projected expenses and income are equal, more or less. Make sure you are using the money as you should.
Budget surplus – the expenses are smaller than the projected income. Keep in mind that not all the surplus might appear as cash until the end of the future fiscal year.
Budget deficit – the expenses are significantly greater than the income. You can rearrange your needs, cut down on the costs, raise extra money, etc.

15. Work with the Budget

Now that you know how to prepare the annual budget for a company by yourself, it’s important to know what to do with it. Don’t just write it down and leave it in a drawer somewhere. Review the budget regularly. Most people review it once a month and revise it to be accurate.

If there are things still unclear for you, check out this tutorial:

https://youtube.com/watch?v=dEvJlzS9C4Q%3Ffeature%3Doembed

To draw a conclusion, it’s not hard to learn how to prepare the annual budget for a company on your own. Simply follow the steps above. In case you need extra help, there are plenty of free budgeting tools for your business. Your budget should be able to show you if there are any minuses in funding, and where. Then, you should see what to do to compensate for them. Finally, you need to track down all the money, adjust to the changes and make sure you don’t overspend.