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Budgeting Made Simple and Why It's Important

Before you can make money, often you have to spend money first. Thus, budgeting plays a principal role in building and maintaining business operations. By creating a budget early on you can keep track of your capital, start-up expenses, and how much revenue is needed to keep your business activities running. Tracking this fundamental information also enables you to anticipate future needs and detect problems that may arise before they spiral out of control.

Creating a budget for your business is necessary for many reasons. However, the primary reason why budgeting is important is that it provides your business with a framework to assess the expenses and revenue needed to keep your business afloat. Keeping accurate records holds you accountable and ensures that you comply with the IRS as well as state and local tax laws. The U.S. Small Business Administration also states that a budget analyzes the following:

• Funds required for labor

• Start-up expenses

• Cost of operations

• Revenue needed to support your business

• An estimate of expected profits

The basic components of a budget such as sales, revenue, total costs (i.e., fixed, variable, semi-variable costs), and your profits helps to determine the factors mentioned above. Today, there are multiple methods used to track this information efficiently. To make your budget more effective, you can use tech-savvy software such as Quickbooks, use an Excel computer spreadsheet or grab a pen and paper. Whatever the method, each option gives you an outlook on how your business is performing.

So, it's simple right? You no longer have to feel lost and clueless about how to get your finances in order. Take the time to sit and write out your budget. That way you will get a clear picture of your business financial outlook and identify ways to improve your operations.

Check back each Monday for the latest Business 360 tips.

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