Managing Your Books

After managing to secure some source of funding and you have a certain amount of money in your bank account, you would wonder - is this money sufficient for me to run the business for this year or maybe for the next couple of months or perhaps years.

The solution would be to come up with a budget plan for your business.

Any organization requires money to run may it be a household, a large corporation or a nation. When you are dealing with money, you must have a budget plan to make sure that you are allocating your limited resource of money in the best possible way.

What Is A Budget Plan? A budget plan is a detailed plan of future receipts, expenditures and a projected profit and loss statement. For most organizations, a budget plan is created annually.

From the budget plan, you will be able to make certain key decisions such as whether you can afford to purchase that equipment that you want or lease a facility to expand your business. From the budget plan, you can also decide whether you should hire another employee so that you can meet the growth that you want for your business.

From the previous budget plan, you can also tell whether you have met all your financial objectives for the previous year and decide how you can make better use of your financial resources for the next year's budget plan. By learning from the previous budget plan, you can also better prepare your next budget plan for any unexpected expenses.

Building your Budget Plan Before drafting the budget plan, it is a good idea to record every expenditure you make no matter how small or minor they seem to be. This would include expenses on newspapers, pencils and so on.

You will need to create a budget plan for your personal income and outgoing statement and the profit and loss statement for your Home Business. The reason for creating two budget plans is for your own convenience come the time to file your taxes. It is also a good idea to separate the two budget plans so that you can have full visibility on how money flows in your business and decide whether your business is managing money efficiently or if your business is turning a profit.

There are certain information that are important to have in your budget plan.

Income and expenses preferably on a monthly basis Include the tax payment schedule usually done on quarterly basis for Home Business entrepreneurs Timetable for payments from clients - This is to know how often you get paid so that you can cope with the cash flow of your business. This will also help you to identify slow paying customers Timetable for payments for bills, overheads and to your suppliers - Similar to the previous point, this is important for you to manage your cash flow. You will also need to check your debt to income ratio. Add up the amount that you spend on lease, mortgage payments, credit card, taxes and insurance and divide the total with your gross income. If the result is more than 35%, you are managing too much debt and you need to do something about it.

In my opinion, credit card debts is often overlooked by Home Business owners. Although a credit card is easy to use, it can blow up in your face if not manage correctly. Keep close tabs on how much you take from your credit card and make sure you identify your credit card debt by month.

When purchasing inventory, it is always best to purchase in bulk because you always get better deals when you purchase in bulk. Thus, it would be good to shop with your friends or fellow business owners so that everyone can benefit from the bulk discounts.

If you plan to take your financial planning to the next level, it would be a good idea to invest in accounting software like QuickBooks or Microsoft Money. These are great tools to keep track of all the financial transactions in your business.

With proper budget plan, you will have a much better idea of where your business stand financially - whether it is profitable or you are spending above what you can afford.

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