Business Budget: the 6 main components
A business budget is extremely important for a company as it contains information and forecasts about the company’s expenses and revenues over a specific period. It is an essential material for strategic planning. Managing a company is an activity surrounded by challenges and “unexpected events” due to a series of external influences, such as political and economic factors. In this context, having a well-prepared business budget is crucial to steer the company in the best possible way.
Check out in this post the 6 main elements that make up a business budget and understand the importance of each one for the business!
Business Budget: the benefits
The business budget should be viewed as a strategic management tool, focused on results and maintaining the company’s financial health. It is crucial for precise decision-making, regardless of the company’s sector. It is much more than a control to keep accounts positive. When well-executed, it is highly effective for the company to be financially sustainable and to plan and scale the achievement of goals and objectives.
It provides several benefits for the company, including:
- Increasing team engagement;
- Contributing to planning return on investments;
- Providing a stronger basis for decision-making;
- Ensuring more efficient and organized management;
- Harmonizing planned and actual actions.
The 6 Elements that make up a business budget
When it comes to composing a business budget, there are several elements that provide complementary information to offer a broad and realistic view of the company’s resources. Creating a business budget requires knowledge and skill about the business, including values, policies, goals, and objectives. Proper composition is the secret to management that prepares the company to overcome challenges and seize opportunities.
See which elements are indispensable for the business budget!
1. Sales planning
Sales planning or sales forecasting corresponds to the company’s predicted sales revenue for a specific (future) period, considering historical data, growth targets, scenarios, etc. Based on this, the company initiates a broader planning process. This forecast allows the company to direct other important factors, such as the possibility of making investments and the ability to cover all costs.Leaving sales planning as an afterthought is a very common mistake, and many managers rely only on current budget monitoring. However, making this projection is crucial for having a broader vision and being able to anticipate. Therefore, it is essential for the business budget.
2. Projection of sales deductions
Sales deductions are calculated based on the gross revenue, including all expenses and costs involved whenever a product or service is sold. These expenses and costs include taxes, commissions, product packaging, costs with cancellations and returns, and logistics expenses. These amounts need to be subtracted to reach the net revenue.It is an important piece of information that shows how much ($) will actually be available and must be present in the business budget. The projection of sales deductions is fundamental to improving the company’s profitability.
3. Production cost budget
This budget is dedicated exclusively to identifying the costs necessary to produce the items sold by the company. This way, it is possible to determine the amount that will be spent to produce and start sales.It is a very important element that helps to identify reducible costs and profit margins. With this information, it is possible to set prices in a way that keeps them attractive to customers and profitable for the company.
4. Personnel expense budget
This represents the costs associated with employees, such as salaries, travel, benefits, and legal obligations. This budget includes all costs related to labor, whether direct or indirect. It is necessary to consider costs with salary adjustments, agreements, health plans, and to foresee possible increases offered in the career plan, if any. Additionally, it is important to consider terminations, vacation payments, and other benefits that may be granted to employees.
5. Operational expense budget
These are the expenses needed to keep the company running, necessary for managing and completing sales to customers. Basically, it is the fixed budget for administrative expenses and internal processes. The main points are financial, tax, and commercial expenses paid monthly. These expenses can vary between companies and economic sectors, so analyzing historical data and particularities is relevant for having more accuracy in the business budget.
6. Investment budget
At some point, every company needs to invest in its own structure, even to keep up with trends and technological evolution, thus ensuring good brand positioning. For this reason, the investment budget is an important element of strategic planning.It consists of costs related to operational investments, technology and software, equipment, vehicles, and employee training and development. These are all amounts aimed at expanding and modernizing the business, providing quality products, and investing in marketing strategies to acquire and retain customers. In some cases, it also involves financial investments in other companies.
The role of technology in this process
Over the years, technology has provided tools that raise the standards of business management. A good example in this case is specialized business budgeting software, which contributes by adding agility and traceability to the process, making it simpler and consequently more accessible.
These software tools are great allies in implementing and maintaining a consistent business budget. Through visual, intuitive, and collaborative management, it is possible to identify where it makes sense to invest more and where it is necessary to reduce costs and expenses to achieve the company’s future vision.
Furthermore, having not only a good business budget but also specialized software will ensure the company is ready to overcome any adversity.
To learn more about business budgeting, check out scoreplan’s budgeting solution.
