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The bottom line on budgets: a well-planned budget can boost your income.

Rather than write up and follow a budget, you might choose to undergo Chinese water torture. But actually, operating without a budget can be an even more painful experience. In fact, it can put your company at a competitive disadvantage, whereas a well-prepared budget can help you anticipate problems.

Say you want to launch a new product line, hire more workers or do a marketing blitz. You don't want to blindly reach into the company till, then pray next month for some extra cash to fall from the sky to make up the loss.

"A budget should be the most important planning tool for any owner or manager," says Robert Finney, author of Basics of Budgeting (AMACOM Books, $19.95). "It supplies information, not in the abstract, but in the specifics of people, dollars, equipment, orders, sales, profit and cash. It gives a sense of reality to the company's objectives and strategies."

In short, a budget is a financial plan of probable sales and expenses for the future to measure against actual revenues and expenditures. A well-prepared budget can help entrepreneurs gain tighter control on their costs and maximize their profits.

Essentially a benchmark for day-to-day expenses, a budget forces you to think through each purchase before you cut a check. And it gives you profit targets to shoot for by comparing expenditures with budget goals.

How you plot future revenues is often affected by company size. Thus, larger companies tend to rely on trends, the state of the economy and the actions of their competitors. Smaller firms look to their customers' buying habits, historical sales figures or seasonal expenses.

Cash flow analysis, a type of budgeting, is vital. You need to record and gauge how much money comes into the business (main source revenues) and how much goes out (fixed expenses). Cash flow statements are used to project how much money will be received and when, so that you can determine upcoming cash needs.

Set up your budget to measure costs from day to day and week to week. Your budget doesn't have to be complicated. And you needn't fret about the mechanics of creating one; there are plenty of software programs to help you. Worth checking out are Quikbooks, M.Y.O.B., Peachtree Accounting and Up Your CashFlow.

Bear in mind that you need an operating budget and a capital budget. The former should generate funds that get contributed to the latter. In general, operating costs are immediate expenses. You need a separate capital budget for equipment and other investments that depreciate over time.

Be careful not to get so caught up in controlling costs that you forsake quality and customer service. Poor service and inferior products also impact the bottom line.

A budget is a written plan of action in numerical form, says Vickie Montgomery, author of The Smart Women's Guide To Starting a Business (Career Press, $14.95). "[Its] purpose is to establish goals, develop a plan that achieves those goals and provide a format for periodically checking to see how you are doing."
COPYRIGHT 1995 Earl G. Graves Publishing Co., Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1995, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:small business advice
Author:Brown, Carolyn M.
Publication:Black Enterprise
Article Type:Column
Date:Nov 1, 1995
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