Budgeting for Business—All You Need to Know

Posted on Tuesday, November 15th, 2022 | By IndusInd Bank

How many times in a day do you come across the word ‘budget’? Often, right? You must have heard your family talking about budgeting and saving money since forever. There’s a plethora of information available online giving tips and tricks on creating a monthly budget and building a corpus for the future. But is budgeting in daily life similar to budgeting for business? Not really. Budgeting for business involves great attention to detail, meticulous planning, and informed decision-making about fund allocation. 

So, if you are an aspiring entrepreneur or a businessman, how do you plan your business budget efficiently? Curious? Well, just read through this article to know. 

What is Business Budgeting? 

Your business budget is the estimation of income and expenses over a certain period of time. Most businesses go by setting up monthly, quarterly, half-yearly, and annual budgets. Timely tracking and evaluation allow businesses to reach goals and prepare for any operational changes if needed. Budgeting also enables you to keep a tab on your business’ performance. For example, if you mindfully allocate Rs.10 lakh for a business project and end up completing it within the budget, you can clearly establish that your business functions and budget estimation are in line with your long-term goal. On the contrary, if you end up overspending, you might want to reconsider budget planning or inspect for operational inefficiencies affecting project completion. 

You can also take an idea of fund allocation by comparing budgets with previous periods if available. And if you’re trying to find an estimated number for a particular project, competitor analysis can be a great way while keeping in mind the operational and financial differences between the two businesses. 

Types of Business Budgeting 

Your business needs, business type, market competition, long-term goal, and several other factors influence financial planning. However, there are some defined budgeting processes that align with most businesses. 

• Zero-based: This type of budgeting starts from scratch every time and does not take into account the past financial data. Zero-based budgeting is best suited when your business is in financial distress. 
• Increment-based: This type of budgeting depends on past financial data to adjust according to future challenges and goals by adding or subtracting a percentage of previous funds. 
• Performance-based: This type of budgeting focuses on fund allocation required per unit or service. 
• Activity-based: This type of budgeting is driven by business goals and the cost of achieving those. 
• Value-proposition: This type of budgeting focuses on fund allocation to a service or unit based on its value contribution to business goals. 

Why is Business Budgeting Important? 

With set timely expenses such as payroll, rent, utilities, insurances, advertising, loans, and more, businesses need to be smart in budget planning for smooth functioning. Here are a few important benefits of business budgeting. 

• Smart budget planning allows your business to stay prepared for the unexpected emergencies. 
• Planning your business budget mindfully enables you to allocate the right number of resources to a project or service. 
• Efficient budget planning leads to timely goal achievements and enables you to plan for further growth. 
• A well-formed business budget shows your commitment to goals and enables investors to invest more confidently. 
• With strong budget planning in place, you can drive sales goals and adjust them as needed. 
• If you have taken a loan for your business, efficient budgeting helps significantly in clearing the debt promptly. 
• Strong business budgeting enables you to plan for big financial decisions confidently and take on new challenges to boost business. 
• Right budgeting allows priority planning of projects that provide more value to the business and thus, impacts broader financial goals. 

How to Create Your Business Budget? 

Here are some tips that would help you create a strong and effective budget for your business. 

• Thoroughly research about cost of resources in your business industry. 
• Clearly evaluate how much income a particular service would make and allocate budget accordingly to stay in profit. 
• As inflation rises, re-evaluate your budget planning from time to time to keep up with market changes. 
• Investing in a budgeting software could be a good choice to avoid human errors in addition to tracking how your budget plan is performing. 
• A ledger can provide a good overview of your budget so check out the inbuilt ledger of Indus Merchant Solution app for your business budgeting. 
• Account for big financial goals and long-term business goals while planning budget to avoid taking too much debt. 
• It is always advised to have a cushion of extra budget for more important services or units. 
• If your sales are driven by natural conditions like more in summer, less in winter, or vice-versa, reserve your sales budget for the right period. 

As you now know all about business budgeting, we wish you the best in all your endeavours. Till then, if you found this article helpful, share it with your friends. 

Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Hence, you are advised to consult your financial advisor before making any financial decision.  IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information.