A neglected yet important need for small businesses is to budget for your year ahead. Most small companies don't do an adequated job of establishing annual budgets. Preparing a budget is not difficult, and is an excellent management tool to monitor monthly income and expenses, identify problem areas early, and improving your bottom line. Four basic steps in preparing a budget are described here:
1. Prepare a detailed chart of accounts. This will help you track budget variances to individual accounts. Some to watch are sales, cost of sales, payroll and insurance.
2. Identify a method to estimate each income and expense account. An easy and accurate way to do this is to base next year's estimates on the actual results from this year and last year. You could also base estimates on information from suppliers or overall industry averages.
3. Prepare a budget. Gather all the estimated information into a 12-month budget. Make sure you take into account trends of slow sales months and larger sales months.
4. Monitor and adjust the budget. Although you estimate, there are never any certainties in forseeing what is coming up. Deviations from your original budget is typical.