If you are in business and are able to bring in your department on or under budget at the end of the year, you are going to be man or woman of the hour. There is simply no doubt about it. Everyone appreciates a business person who can keep within his or her budget and still make a profit, so let’s take a look at the four important budgeting steps that will enable you to set a budget that you can live with:
- Be sure to estimate a sales revenue target. This is one of the most important parts of every budget, although it is also one of the least reliable. You must use your instincts and statistics to make a good estimate based on past experience.
- Estimate the cost of your products sold. That should be 70 percent of sales. When you subtract this from the sales revenue, you get your estimated gross margin, an important figure.
- Variable expenses come into play next. You must estimate travel, commissions, and other miscellaneous expenses. Then estimate the fixed expenses. These are the known factors such as rent and taxes. Subtract these two figures from the gross margin and you will have your estimated net income.
- Take the budget for the year and divide it into quarters. Every three months, you must compare the reality with the projection and if they are not similar, reevaluate your business procedures to try to create more parity.
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