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Budgeting for 2014 is No Small Task

John McMalcolm

February 06, 2014

Budgeting is one of the most effective tools for planning and reviewing your small business finances.

However, it can be difficult to prepare a good annual budget, because sales, prices and expenses can change significantly over the course of a year. The task is made more challenging by the fact that the U.S. economy is still in recovery mode.

Here is a look at the considerations you hopefully made when you put together your small business budget for 2014.

Benefits of Setting a Business Budget

The main purpose of a small business budget is to enable you to manage your business finances more effectively.

By making a list of all your expected revenues and expenses, you will have a rough idea of the profitability of your business in 2014. If you are not pleased with the projected financial results, you can take measures to reduce costs or increase revenues to boost your profits.

Additionally, budgeting can help you allocate resources appropriately, identify potential problems, make better decisions, meet your goals and plan for future growth.

What Items Should Be Included in a Business Budget?

The three main components of a business budget are revenues, expenses and profits:

Revenues

Revenues come mostly from sales, but they can also be generated through interests, rentals, gifts and donations. You should try to make your revenue estimates as accurate as possible. However, if you are unsure, it is better to be conservative than over-optimistic. It is common for businesses to base their revenue estimates on their previous year's sales figures.

Expenses

Expenses in a business budget are usually divided into two categories, namely, fixed expenses and variable expenses. Fixed expenses are expenses that do not vary according to sales and production levels. They include premise-related costs, such as rent and property tax; staff costs, such as wages, health insurance and benefits; utilities; equipment costs; printing, stationery and postage; vehicle expenses; marketing costs; legal and professional expenses, such as business insurance; and travel expenses such taxi or shuttle services. Variable costs, on the other hand, are costs that are incurred in the production and sale of goods, such as the costs of materials, components and subcontractors.

Profits

To get an estimate of the total profit you will make in 2014, you have to subtract the estimated total cost from the estimated total revenue. You can check with trade associations and accountants to find out the appropriate amount of profit your business should be making.

Consider the State of the Economy When Setting Your Budget

The National Association for Business Economics forecasted that the U.S. economy will grow at a rate of about 3 percent and consumer spending will rise by 2.6 percent in 2014.

This means that businesses will generally see a slight increase in their sales next year. Such a forecast can help you make a more informed estimate of your business revenue.

Also, some insurance companies are saying that health insurance rates may increase by 30 to 100 percent when the Affordable Care Act becomes fully effective in 2014. As such, you have to be prepared to pay higher staff costs.

Budgeting is an important part of your business plan. If you want to avoid potential financial problems, you have to make sure that your budget is properly prepared.

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