Planning for the future is vital for any business that wants to survive.
Many business owners know that budgeting is a critical component of planning, but there is some confusion about what should be included in a budget.
Three aspects are crucial. You can use them together to provide the business oversight you need, and to set key targets.
By analyzing the facts on the ground and predicting the potential future outcomes, you will be able to make informed decisions.
1. Profit and loss
The budget should begin with an analysis of profit and loss. What are your company's costs and revenue drivers? In the event of a change, how will it affect your company? For instance, how many existing customers do you have and what is the average invoice value?
2. Cashflow forecast
Cash flow management is one of the main reasons for small businesses failing
3. Balance sheet
A balance sheet provides a projected statement of assets, liabilities, and owners' equity, and is the final step in the budgeting process. A balance sheet contains the following information:
• what does the business own (its assets),
• what does it owe (its liabilities)
• what’s the difference in those amounts, which is the equity.
It's not uncommon to hear the phrase "a healthy balance sheet." This refers to a balance sheet with assets exceeding liabilities so that the business can comfortably meet its obligations.
As always ECBBS is always her to help you understand your reports from your accounting packages.