For a business to be successful, whether large, medium or small, two common financial elements are needed: planning and proper management of finances. In order to steer your company in the right direction, it is extremely important to develop a budget and follow it.
What is a budget?
The budget is a guide or plan of action focused on a financial goal. It is made up of information and economic data that must be fulfilled within a certain time and is related to the products and services that a business offers.
A budget should include the following basic information:
- General business information – Indicates the company’s contact information.
- Customers – Identify the primary and secondary audiences your business serves, that is, the customers to whom your company’s products and services are directed.
- Offer – Establish the offer of your business’s products and services and what are the differentiating elements of your company versus the competition.
- Value – Determine the value of the products and services that your company offers, and not only in monetary terms, but also in the added value, or the benefit that your client can receive through these products and services.
- Payment methods – Today there is a wide variety of payment methods, in addition to traditional methods such as cash, checks and credit cards. Now there are a variety of electronic platforms such as virtual wallets, among others, that you could use in your business.
- Fixed and variable expenses- Detail all the expenses you have in your business such as payroll, materials, rent, inventory, utilities, permits, insurance, licenses, savings and professional services that you need to hire such as accounting, legal services, advertising and public relations, among others.
Why is it important to prepare a budget?
As we mentioned before, a budget is a guide or action plan for your finances, which allows you to direct your business towards a certain goal. It should be noted that it is extremely important that you establish a budget both for your business and for your personal or family level. In the event that you wish to apply for a commercial loan to expand your business, purchase machinery or equipment, or any other reason, the bank will also carry out an analysis of the applicant’s personal financial situation, which is why it is important that you also establish some controls at a personal level and maintain a stable personal financial situation.
Setting a budget and following it allows you to control your spending so you can make strategic financial decisions. For example, if you notice that your expenses are greater than your income, you can determine how you can control your expenses. Identify which expenses are necessary and which are excessive or that you can do without. It can also help you determine if you need to establish strategies to increase your sales and your clientele.
On the other hand, in a budget you can also establish an item for savings, to develop new projects or to attend to emergencies. A recent example is the immediate changes that many businesses had to make as a result of the pandemic. Many had to reinvent themselves and establish new ways of serving customers, as in the case of restaurants that expanded their carry-out and home delivery offerings. If there is no financial planning to deal with this type of emergency, your business can suffer a major setback.
If you do not have an established business yet and are in the process of establishing one, you should also develop a budget so that you can identify your financial needs, how much money you need to establish your business, and how much your business sales should be to operate successfully.
If you want to expand your business, the budget will also help you stay focused on that growth. In many cases, to expand your business you will need a commercial loan, therefore, the bank will request a financial statement where there is an analysis of your income and debts.
In summary, a budget should serve as an x-ray of the situation of your business, to identify opportunities and needs. Likewise, a budget is a living document, it is not a document to be created and then shelved. The budget must be constantly looked at and evaluated. It is also recommended that you use the budget to develop two to three year projections, to identify trends, make adjustments and ensure the growth and success of your business.
If you need help or guidance with any financial aspect or are interested in requesting some type of financing for your business, remember that at Oriental we are more than ready to serve you. Access orientalbank.com.
