Business Budget Planning

We recently started the business budget planning process with a medical service provider who had just purchased another practice. He thought he knew the revenue and operational costs based on the information he had reviewed. However, he soon realized that the revenue was nearly 25 percent less than what he expected based on a variety of factors, including patients leaving because the previous doctor had left.

The takeaway here is that whether you have an established business or a startup, you’re planning to merge with or acquire another business, or you operate a nonprofit, careful budget planning can help you avoid surprises that have a direct impact on your bottom line. It’s important to partner with a CPA that is experienced with budgeting for business and considers all expenses and revenue sources during the planning process.

Why You Need a Business Budget

Every business or nonprofit needs a budget, regardless of size. Just like a small startup shouldn’t assume a budget is pointless because there are too many unknowns, a highly profitable business shouldn’t assume a budget is unnecessary because they make so much money. Even if you’ve managed to wing it without a budget for years, the risk increases as your business grows and becomes more complex.

A detailed business budget allows you to operate more efficiently, become more profitable, and sustain that efficiency and profitability. It allows you to identify funds that can be reinvested in your business. It allows you to maintain cash flow during slow periods and avoid going into debt. When you have visibility and knowledge of the financial details of your business or nonprofit, you reduce risk and position your organization for success.

What Does the Business Budget Planning Process Entail?

The first step of business budget planning is to understand your goals. Do you want to increase revenue by a certain percentage? Do you want to open a new facility? Do you plan to expand your product line and sales force? Are you satisfied maintaining the status quo? Once we understand your business goals, we can help you develop a budget.

For an established business, you typically have a history of financials to review. We examine your revenue. We review your fixed costs, such as rent, insurance, interest, and real estate taxes, as well as variable expenses, such as direct materials, marketing, and commissions. We also make sure you as the business owner pay yourself and account for these costs. Finally, we recommend setting aside a contingency fund that equals three to four months of operating costs. Based on this information, we will be able to create a budget and flow this information into a profit and loss (P&L) statement

For a startup, we go through many of the same steps, although most of these numbers are unknown. They’re based on research and projections, not historical data. New businesses and nonprofits should work with a CPA to paint a clear financial picture and reduce risk.

Let Diane E. Cahill CPA, P.C. be your strategic business partner and guide you through the business budget planning process. Contact us to schedule a consultation.