Budgeting Is the allocation of monetary funds based on a determined structure What does this mean?

Budgets Plan for organization of revenues and expenditures Plans for how you spend and save money Are numerical records which predict spending for a specific time period Are used as a planning guide and control device

Reasons for Budgeting Provide company or personal financial stability Guide efficient business decisions Establishes Goals Control expenses and liabilities Helps monitor your money

Basic Parts of a Budget Income Expenses sales Investments Example? fixed variable

Gross Income Is the amount of income received before costs of goods and taxes Is also known as “pre-tax” income

Net Income Is the amount of income after costs of goods and taxes are deducted Is also known as “after-tax” income

Creating a Budget Track spending List monthly income List monthly expenses Balance the budget

1. Track Spending Keep receipts for all purchases and expenditures Maintain a record of all checking account withdrawals Save cash-spending records

2. List Monthly Income List all categories of income (sales or investments) Determine the gross monthly income by adding all income together Subtract the cost of goods sold from gross monthly income to determine the net monthly income Net Income = Gross income - Expenses

3. List Monthly Expenses List all categories of expenses What expenses are the same every month? What expenses are necessary but vary each month? What expenses are unnecessary? List all categories of expenses Divide list of expenses into two categories: fixed variable Eliminate unnecessary expenses

Fixed Expenses Remain the same regardless of business activity Stay constant for a specific period of time Examples include: rent insurance equipment leases Create a subtotal for fixed expenses by adding all fixed expenses together

Variable Expenses May change or fluctuate Are sometimes hard to predict Examples include: cost of supplies advertising expenses utilities Create a subtotal for variable expenses by adding all variable expenses together

4. Balancing the Budget List the net income Add the fixed and variable expenses together to find the total expenses Subtract the total expenses from the total income Net Income – Total Expenses = if negative, a loss has occurred find ways to decrease spending or increase income if positive, a profit was made move extra money to savings or miscellaneous account

Increasing Savings Make saving a priority Set a savings goal Pay yourself first by putting aside a set amount experts suggest 10 to 20 percent of gross income

What is Your Business Worth? Owners need to know how much their business is worth for additional purchasing and growth opportunities to evaluate the financial health of a business to plan for future business

What is Your Business Worth? A business’s worth is determined by evaluating two main factors assets items of ownership convertible into cash liabilities money owed; debts

Assets Include: cash equipment buildings

Liabilities Include: equipment loans charge accounts rental fees

Net Worth Is the difference between what is owned and what is owed Net worth = assets - liabilities Is the most important factor when assessing a business’s financial strength