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A weekly look at Wyoming business questions from the Wyoming Small Business Development Center (WSBDC), part of WyomingEntrepreneur.Biz, a collection of business assistance programs at the University of Wyoming.
By Bruce Morse, Region 2 Director, WSBDC
"I hear people talk about budgets, but I've never used one in my business. Is this something I should be doing?" Peter, Lander
As you read this we are approaching a new year, and for most businesses, a new fiscal year as well. Now is an excellent time to develop a budget for 2011.
So what really is a budget? Basically, it is a forecast of a business's revenue, expenses and anticipated profits. This process is sometimes referred to as profit planning.
Many families prepare a budget of income and expenses, usually on a monthly basis. They know what their income is and then allocate that between various expenses like housing costs, utilities, food, savings and other more discretionary expenses such as entertainment. Preparing a budget for a business is really no different.
It is a projection of what the business owner believes will happen. So why should the time be taken to do this? If not, it will be difficult to answer questions such as "Can I afford to give my employees raises?"; "How much can I afford to pay myself?"; "How much should I tie up in inventory?"; or "Should we buy a new truck or fix the old one?"
By projecting what revenues and expenses will be, the business owner will be in a better position to answer these questions and others. The process helps identify revenues and expenses and provides benchmarks by which to measure progress. These measurements can be against the budget, last year's results, or peers within the industry. It is important also to involve employees in this process. After all, they will be key players in making it happen so the more they feel invested, the better results that likely will be achieved.
The main elements will be to forecast revenues, gross profit and operating expenses. Use historical information as a starting point and be sure to document assumptions so two or three months from now as to why those figures were used.
Call a Wyoming Entrepreneur for one-on-one guidance developing a budget for a business.
A blog version of this article and an opportunity to post comments is available at http://www.wyomingentrepreneur.typepad.com/blog/.
The WSBDC is a partnership of the U.S. Small Business Administration, the Wyoming Business Council and the University of Wyoming. To ask a question, call 1-800-348-5194, e-mail firstname.lastname@example.org or write 1000 E. University Ave., Dept. 3922, Laramie, WY, 82071-3922.