“When it comes to money and so many other things in life, understanding your weaknesses and strengths can help you with your future plans.” ― Tagene Brown-McBean
Ever since from a young age, we are all told by the adults to save up money as much as we can, even encouraging us by giving us piggybanks as gifts. It was kind of ironic because they themselves spend money every time for certain things they don’t need and maybe only the adults have the right to spend money like that. But now that we’ve grown up, whether in our personal or business operations, we’re still stuck with budgeting. What is budgeting? Why the need to create a budget? Why is it important?
Budget Planning and its Significance
Budgeting is creating a plan on how to spend your money wisely and efficiently. Basically, a budget plan is your spending plan which will allow you to determine in advance whether you will be able to finance the things you need to execute now and in the future. Budget planning for personal uses and business purposes works similarly but there are some important distinctions that needs to be included.
In Personal Budget planning, it starts with determining your resources or income and taking account of your present and future expenses, ensuring that you will reach your financial goal – enough savings left after all expenses deducted. While in Business Budget planning, a need for a more sophisticated financial plan is critical to ensure that there is always a sufficient liquidity in a business and the business produces profits on a sustainable basis.
Also, at the end date of the plan, businesses should always compare their initial budgets vs. the actual results and using the results, they will learn how to improve the accuracy of their forecast. The difference between the current budgeted amount and the actual result in terms of profits is called the budget variance. A budget variance can be manifested either in a solid figure or in percentage format.
Here is a list of benefits of creating a business budget:
- Managing your cash effectively
- Allocating resources wisely and profit oriented
- Setting clear financial objectives
- Use as well-structured performance monitor
- Improved decision-making
- Preparation for future expenses and other circumstances that needs financing
And here is another list on why Budget vs. Actual Comparison is necessary:
- Identify weaknesses and find opportunities to improve profits
- Determining the areas that needs more funding or simply improving the budgets for certain areas
- Determining if the budget is realistic or accurate
- Determining if the business is on track on meeting the long-term objectives
- Able to alter future financial forecasts based on the results collected
Just like what is said in the quote, being strict in your budget is important but, certain circumstances like taking advantages of your strengths in your business, with proper budget adjustment, will help gain you more income and the same with areas that needs the budget to be lowered. In other words, budget strategizing. An example would be cutting back on spending expenses for marketing and advertising when needed or changing temporary factors that will affect the business in a short period of time.
This is why businesses practice comparing their estimated budget vs. actual results to better evaluate their financial performance, find weaknesses and potential for improviement, forecasting income, and identifying operations, that are going against the expected flow. Thus, it’s concluded that it is critical to keep the finances on track and the forecasting accurate.
But this doesn’t mean any individual is exempt from budgeting. Especially for those who are just making ends meet. Whether in a personal or family budget, balancing the source of income to all expenses is a must or it will be a problem to go over the budget. This is actually a common problem for many people who don’t realize that they’re spending more than they earn, sinking deeper into debt every year. The need for budget planning is clear and the sooner the better it will be for their future.
How to Create a Budget Plan
For businesses, being not in debt and continuously gathering more funds for further expenditures is the best thing to know. Hence, creating a budget plan is always a part of their business plans.
To create a budget plan, the following steps need to be realized:
- Determine your income, sales or profits – Calculating your earnings or revenue in your business is the first thing you need to do. Including all sources of your business’ income and other areas that yields you a profit. Be realistic as much as you can and be careful with overestimating in your forecast to have a more accurate result in the end.
- Determine your direct expenses – The next important thing to do is listing out all your direct expenses. For example: cost of materials, components, subcontractors and other professional service fees. No matter how small or inconsequential the value is, it is important to note down because little things will slowly grow as you keep on ignoring it. A proper and strict discipline is needed to ensure the accuracy of your budget. Thus, you need to calculate the amount spent on every expense.
- Determine your fixed costs and overheads – You need to list down things that your business will spend money on. Certain expenses that like building or assets rent, utilities, traveling expenses, insurance, etc. Calculating a forecasted expenditure is needed to be taken note of.
- Determine your debt payment – It is, of course, one thing that needs to be kept on track. To make sure nothing is left behind. This includes the total debt and its interest that needs to be paid.
- Update and Review budget to readjust the figures – Based on your profits and cash flow, estimations will be made. Hence, the need to take a look back and readjust your estimates to ensure that you will reach your target. Factor in all the adjustments no matter how small, then run the numbers again. This will ensure and help you figure out whether your business will have any money left over for capital improvements or capital expenses.
Conducted yearly, budget planning for your business takes account the expected need for funds and the potential of saving money for future use. Thus, giving you a clear way on how your business will grow.
Budget planning for personal purposes will help maintain your standard of living post retirement. And the best thing of all is, it puts checks and balances in order to prevent you from overspending and in debt in the future. It may affect the quality of life you wanted, especially if you planned too tight and it may become an issue. But this is something that you need to risk for. Just be patient, budget planning is worth it.
A Shortcut in Creating a Budget Plan – Excel Budget Templates
If you are in need of a budget plan but don’t have the time to create all the needed calculations and details that you need to note down, downloading the best excel budget template is the answer for you. Especially for businesses, a touch of a professional or an expert is needed in their budget planning to ensure the estimations and forecasted figures will be as accurate as possible.
Instead of hiring and paying high service fees, whether personal savings plan or for businesses in different specific industries, you can simply take advantage and acquire a budget template, which cost only for a little, where you can edit and implement the figures you gathered and complete the plan for you.
These templates will offer a systematic budgeting framework together with charts for a better view of the figures shown in the template. No worries about how to start and edit the template, for there will be additional instructions guiding you in completing the budget model. How awesome is that?
Rest assured that these excel budget templates are made by financial modeling professionals and experts. So, aside from saving your time, your budget plan’s framework will look more manageable and easier to understand. If you’re looking for where you can get these templates, you can check our website for the best excel budget template that fits your needs.