Most business owners understand the importance of a business budget. But, did you know there are five different types of business budgets you should be utilizing? You know you should be tracking how much money you’re making, so you know whether or not you’re making a profit, right? Actually, budgeting for businesses is much more than just a simple “money in, money out” equation.
If you want to honestly track and comprehend your business’ expenses, income, and profit margin, you need to use more than one business budget type to keep track of your professional finances. In fact, you should be using all five types of business budgets to paint a realistic picture of your business’ cash flow, revenue, expenses, and overall value. If your business ever got into financial trouble, knowing you have your business’ financial data on-hand in the form of a detailed budget can easily make the difference between recovery and going under, especially if you’re running a small business.
Types of Business Budgets
A master budget is one of the five types of business budgets. It is the overall picture of your business, and it’s many revenue and expense streams. Your master budget will combine the smaller snapshots of your other business budgets into one overall presentation. This may include the budgets of each branch, location, or department, depending on your business’ hierarchy and how much it expanded. A master budget accounts for the operating costs including administration, production, manufacturing, labor costs, and other expenses. It will also paint a picture of sales and other income. The purpose of your master budget is to let you know at a glance whether or not your business is making money as a whole. Moreover, if it’s not making money, it shows you where you can afford to cut costs, or which managers are underperforming.
Master budget app
If you need help creating a master business budget, consider QuickBooks. For as little as $10/month, QuickBooks can track all of your business’s income and expenses. It can even scan receipts to keep track of supplies and connect to any credit card or bank account, including Paypal and Square.
Here is a tutorial for QuickBooks:
An operating budget is the second of the types of business budgets we will discuss. It uses your business’ past and present income and expense reports to create a projection of finances. Say your company took in $54,000 in sales and spent $29,000 on labor, manufacturing, production, and other overhead costs last year. The year before, sales were $61,000, and expenses were $33,000. The prior year, sales brought in $49,000, and expenses cost $22,000. So far this year, your business has made $19,000 and spent $5,000. How much profit can you expect at the end of this year? Your operating budget can tell you.
Operating budget app
Scoro allows you, the business owner, to track income, expenses, payroll, and individual business projects in one place. It shows you projected revenue, costs, and budgets for planning the future of your business. Packages start at $22 per month.
Here are some of Scoro’s features:
Cash flow budget
The third one of the types of business budgets we will discuss is the cash flow budget. This budget keeps track of the cash your business has both on hand, and how much you can expect to have on hand shortly. This means money that is not owed to payroll or expenses or tied up in credit or debt. Your business’ cash flow budget is what you want to consult when deciding whether or not to take on a new project, open a new location, or launch a new product.
Cash flow budget app
Float is a user-friendly app that can track and forecast cash flow for your business. It is great for the visually oriented, presenting your business’s financial data in the pretty package of graphs and charts for $35 per month. Float can also integrate with other budgeting software, like QuickBooks.
The fourth of the types of business budgets you should know about is the financial budget. Your company is likely worth more than anything to you, but do you know how much it’s worth in real dollars and cents? A financial budget is what tracks a companies assets and overall value. It reviews the company’s revenue and expenses on core operations only. If you planned to sell your business, your financial budget would prove its worth to buyers. If you were to consider, for example, a public stock offering or a merger, a financial budget could help you determine the current market value of your company.
Financial budget app
CalcXML is a favorite app that will create and use a financial budget to calculate the value of your business. The process is quick and painless and provides an accurate picture of your business’ worth for you or another business you plan to merge with or sell to. An appraisal and unbiased assessment of your company are essential to have in your corner if you are considering selling your business in the future. A financial budget app can help keep track of this information.
Finally, the last of the types of business budgets you should have is a static budget or a budget within a budget. Static budgets are fixed in place, regardless of how the other factors in your master budget may change. For example, your business may have a static budget in place each year for office space. Even if your office staff grows or shrinks over that period, the static office space budget remains for the year.
Static budget app
Static budgets are simple and can easily be incorporated into any other financial software package your business uses. Simply consider your income and expenses, and set an amount you know you can afford to spend. You also need to determine the period the static budget will cover. Office or warehouse spaces generally requires a one year lease.
Static budget variance
When a business sets a static budget, and then the expense varies from the budgeted amount, it creates a static budget variance. Studying static variances is crucial to determine why the actual costs ended up being more or less than the projected costs. Sometimes, the variances may be out of your control, such as the landlord raising the rent. Other times the variance may be caused by something that can be adjusted to create a more accurate static budget for the next period. Do your research before setting static budgets for the next year if this year’s ended up with variances.
Find a Business Budget That Works for You
Owning and operating a business is not easy. Neither is managing professional finances, especially on your own. Budgeting for your business can be overwhelming, frustrating, and downright scary. Modern technology is incredibly helpful when it comes to financial management. Don’t try to be a hero. Don’t try to handle everything on your own. If you can, hire an employee or 10 to manage your company’s finances, including budgets and taxes.
If you aren’t able to hire an accountant or four, get yourself an easy to use financial software package at the very least. You’ll be able to create each of the five types of business budgets you need to succeed and manage them from whichever device you have in your hands currently. Don’t risk the future of your business by failing to thoroughly budget. It is worth the time and effort, especially if it ends up being the difference between survival and failure during hard times for your business in the future. You will thank yourself (or blame yourself) later!