6 Key Components to a Business Budget

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Each fall, the CPAs and business advisors at Doeren Mayhew encourage our clients to conduct three important planning steps for the new year – tax planning, developing or revising your strategic plan and developing a business budget. With that in mind, here are six key components of a business budget:

  1. A description of your business and its market. You may think you have a sound budget for your company, but it won’t be accurate if it’s for your company three years ago. Compose a brief description of precisely what you’re doing right now, how your market is going (hot? cold?), and what economic factors may be affecting how your money is budgeted.
  2. Explanation of how the budget supports the company’s mission, vision, values, goals and objectives. To be included in the budget, items should tie into and support overall company goals. If you can’t effectively demonstrate how an item enables a particular goal, you should question its merit. If you don’t already have a mission statement, compose one to help you with this component.
  3. Line-item details for allocating funds. Typical examples include staffing, real estate, equipment and material needs. Although it can be tedious to maintain a detailed budget for all company expenditures, it’s good cash-flow management. Your budget can facilitate expense tracking and help guide spending decisions to align with your business goals.
  4. Expectations for measuring performance against the budget. For analysis purposes, a budget is useful only if you update it regularly so it accurately reflects actual spending. For instance, you may have underbudgeted or overbudgeted on some items and, thus, spent more or less than you anticipated.
  5. Supporting appendices. These may include a historical budget and results analysis. Also consider attaching summary documents for each department, tables and graphs depicting market and cost trends, organizational charts and a glossary of terms.
  6. An executive summary. This can be a good way to focus all of the information in your budget and provide you with some practical “takeaways.” More important, an executive summary can make your budget more digestible to lenders and outside investors.

From simple expense-focused budgets to complex departmental and multiple-entity budgets, Doeren Mayhew’s CPAs and business advisors work with you to create a business budget based on your level of need. For more information, contact us in Michigan, Houston or Ft. Lauderdale.

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