Budgeting 101: A Creative Approach to Financial Excellence in Business

By Lillian Njovu and Choolwe Chileshe.

Basics of Budgeting: Learn essential skills to manage your finances effectively and achieve your financial goals.

Many of us find the task of budgeting boring or challenging because it involves working with numbers. However, it's important to set a business budget accurately using actual figures rather than guessing. Overall, budgeting provides businesses with a structured approach to financial management. It helps them plan, control, and evaluate their financial activities, ultimately leading to improved efficiency, profitability, and long-term success. We will to guide you through a step-by-step process that will provide you with precise figures for creating the right budget.

To start, a well-planned business budget should be holistic and cover all areas of your small or medium-sized enterprise. It goes beyond just determining expenses like rent and salaries. A comprehensive budget takes into account all aspects of your business, including potential profits and losses.

Let's dive into the key steps for creating a Better Business budget at the beginning of each month. By following these steps, you'll gain a clearer understanding of your business and identify areas for improvement.

Step 1: Review Your Income Statement Report The income statement report reveals your revenue or sales, providing insights into your recurring income and expected income. Recurring income includes regular payments from customers or contracted clients. By analysing these figures, you can create a budget that reflects your recurring income and projected earnings. Additionally, the income statement report highlights your expenses, such as rent and salaries, distinguishing between recurring and occasional costs like utilities. These figures form the foundation for a precise budget.

Step 2: Examine Your Balance Sheet: The balance sheet provides a snapshot of what you own (assets) and what you owe (liabilities). It includes assets like land, vehicles, machinery, and trade receivables from customers. Liabilities encompass amounts owed to suppliers and banks. By carefully reviewing the figures on your balance sheet, you can make accurate projections for your budget. This step allows you to assess who owes you money and how much you owe to others.

Step 3: Utilize the Trial Balance: The trial balance consolidates all the figures from your income statement and balance sheet into one document. It provides an overview of total credits and total debits, representing your assets, liabilities, expenses, and sales. This comprehensive view allows you to analyse previous months' expenses and make informed budgeting decisions for the upcoming period, whether it's the next month, quarter, or year.

By utilizing these three sets of figures—the income statement report, balance sheet, and trial balance—you can create a well-communicated and thoroughly planned budget for your business. A properly executed budget offers valuable insights into your business's financial health and guides decision-making.

In conclusion, it's essential to remember that a budget serves three main purposes. First, it reveals the costs required to run your business. Second, it helps you determine how much you can reinvest in the business to drive growth. And third, it helps you assess whether you can afford to pay yourself or any shareholders. By understanding these aspects, you'll be better equipped to manage your finances and drive your business toward success.

We hope that by following these steps, you'll no longer view budgeting as a tedious task limited to accountants. It's a fundamental process that you can undertake with confidence.