Corporate Budgeting: 10 Tips
If you're in charge of corporate budgeting, ten tips like these may just change the way you do business. For anyone who is in business, the main goal is to make a profit. There will be necessary expenses and expenditures along the way, but the idea is to make money. To ensure that this happens, a good business plan and a corporate budgeting strategy are needed.
- Have a written financial plan. By having a written copy of the corporate budget, you will be able to refer back to this, and always have it on hand, as a reminder of where the company wants to be.
- Estimate cost of goods sold. Cost of goods sold is the amount of money it will take to produce the product you are trying to sell. Make this estimate based on previous figures, and any current contracts that you have to fill. This is taken a step further and the cost of goods sold is subtracted from the estimated sales revenue. This number will give an estimate of where the company needs to be.
- Variable expenses and fixed expenses. Variable expenses are expenses that will vary such as gas. Fixed expenses are expenses that do not change such as rent and taxes. By estimating these numbers, you will be able to roughly determine what your costs will be and you can approximate your net income. Take the variable expenses and fixed expenses and subtract them from your gross margin to get the estimated net income.
- Budget into quarters. When doing the corporate budget, break it into quarters throughout the year. Every three months go back and look at the corporate budget to monitor how it is going. This allows problems to be fixed and corrected getting into trouble.
- Revenue target. Determine how much money you want the company to make. By knowing this figure, you can go back and tweak the expenses and extra costs to make the target revenue figure happen.
- Just-in-time inventory. If possible, switch to a just-in-time inventory system. This is a type of inventory system where you keep as little in stock as possible. Your company only creates the product once an order is placed for that product. This will greatly reduce the amount of inventory that is on hand and will reduce costs.
- Use competitive bids. When you are putting contracts out for bid, make people work for your money. Get multiple bids if possible. This allows you to get the lowest price and make others compete for your business saving you money.
- Vendors and suppliers. Vendors and suppliers are crucial to companies so maintaining a good relationship is key. By using them frequently and giving them business, you may be able to cuts deal from time to time saving some expenses making the corporate budget work.
- Be aggressive with collections. As cash is flowing out, there also needs to be cash flowing in. Some people will have issues with paying their bills so having a good collections department will help.
- Keep excellent records. Staying on top of the income and expenses will make doing business easier. By knowing exactly what money is coming in and what money is going out, you will know exactly what is going on with your company and will not have to pay unnecessary money to fix any problems that may occur.
Running a corporation is a hard task. Large amounts of money are flowing in and out. By having a good game plan, a good corporate budget and good people working for you, you will be able to save money and make a profit.