Budget preparation involves two processes: predicting income and expenses for a specific period and allocating available finance to meet current and future needs. The budget is a very important element of your business plan as it provides detail of the financial performance that you expect your business to reach. You need to think in simple terms when planning your budget. Thus, you can ask yourself how much I will make with my business and when I will make it as well as how much I will spend and when I spend. Thus, you need to simply consider your income and expenses with their arrival time and when you need to pay respectively.
You can use the table “Cash flow Forecast Year 1” in the cash flow forecasting section to prepare your annual budget.
You need to fill out your potential/projected income in the first part of the table with their occurrence timing; i.e. put the figures in occurring months with your best guess. Please explain clearly how you did get those figures what are your assumptions etc. If you are not sure about some figures, please note these as well. You will be very busy with your enterprise’s daily business and these notes will help you when you forget all these assumptions in a few days later. It will be very difficult for you to prepare 1st years’ budget due too many guesses to be made. It will be relatively easy in the following years since you will have some historic data and you may use these figures to make best estimations.
After completing the income part in the table, you can start with the expenses part. It is important to include all your potential expenses to make a perfect budget guess. If the table has missing entries for your other expenses, then please add them to the table with inserting additional rows. Please add again notes to the figures as in the income table thus it will provide you your assumptions in the future.
There is a general rule when preparing your budget: Underestimate your income and overestimate your expenses.
