About Advice > Startup

Budgeting

What Is a Budget?

A budget is a forecast of all cash sources and expenditures. It is organized in the same format as a financial statement, and most commonly covers a 12-month period. At the end of the year, the budget's anticipated income and expenses are compared to the actual performance of the business as recorded in the financial statement. A budget allows you to foresee problems before they occur and alter your plans to prevent those problems.

How to Use a Budget

Budgets help to determine how much money you have and how you will use it, and to decide whether you have enough money to achieve your financial goals. As part of a business plan, a budget can help convince a loan officer that you know your business and have anticipated its needs.

A budget will indicate:

• The cash required for necessary labor and/or materials
• Total start-up costs
• Day-to-day maintenance costs
• Revenues needed to support business operations
• Expected profit

If your budget indicates that you need more revenue than you can earn, adjust your plans by:

• Reducing expenditures (e.g., hiring fewer employees, purchasing less expensive furniture, or eliminating a telephone line)
• Expanding sales (e.g., selling additional products or services or conducting an aggressive marketing campaign)
• Lowering profit expectations.