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Budgeting: Exercise in Pencil Pushing or Tool for Increasing Profitability?

Guest post by: Shirley Coop

Article Overview: Accounting software helps immensely with budget management for your business. Peachtree Accounting software has a wonderful budgeting tool which allows you to create multiple budgets for the same year. Using the budgeting tool, you can create a best case, worst case and realistic case to move your business forward.

Budgeting: Exercise in Pencil Pushing or Tool for Increasing Profitability?

Here's a real life example:

A local company with 5 full-time employees and a number of on-call independent contractors sends out crews to shoot video for commercials, speeches, documentaries and training seminars. The owner knew based on the number of jobs booked during the month that they should be making a reasonable profit but he couldn't find it. He never seemed to have the cash he needed. So, is the problem that jobs actually incurred more expenses than he calculated in his head? Or, is it that jobs completed weren't billed correctly? Or, was he not actually doing as many jobs as he needed to meet the fixed overhead? Or, was he not collecting the jobs he did?

Well, it was some of all the above. He found an accountant who helped him create realistic budgets showing how many jobs per year and per month, the related costs and realistic operating expenses. With the budgets in hand, each month he analyzes his income statements compared to the budget and compared to the prior year. During the month, the new budget helps his staff get the jobs booked, so they can earn incentives built into the budget. The company is now a leader in their industry and the bank has no problems extending them loans for equipment, expansion and line of credit.

There are a number of benefits to using budgets as a daily, weekly, monthly and annual tool or scorecard in your business:

1. Budgets help keep expenses in line with revenue and give you an early warning system alerting you to unexpected windfalls or expenses.

2. Budgets help you set goals and measure progress toward those goals.

3. Putting the budget in writing ensures you don't miss any critical pieces, and makes the picture clear to you and your staff.

4. Analysis compared to budget will also help you get loans for equipment and expansion because it will show the lender how the funds will be repaid.

Most common mistakes in budgeting:

1. Considering the budget a one-time or once a year exercise. It is a dynamic document which can be used to manage the day-to-day business.
2. Unrealistic budget without the right amount of detail. It's easy to get the big elements and then get bogged down with making projections.
3. Needing help getting started but not asking for it. CPA's, accountants and other financial advisors can help you get started. Then, you can keep it going.

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Article Tags: accounting software, budget management, budgets, Peachtree software, profitability



Related Forum Posts
Re: Budgeting Approach - Budgeting plays a vital role in any business. I totally agree with Ringo what he said and how they had planned to invest and continue with their business. The information you share over here is nice peter. Small entrepreneur will get a great help from your provided information.
Re: Budgeting Approach - [quote="baconmarius":252nopeg]Budgeting plays a vital role in any business. I totally agree with Ringo what he said and how they had planned to invest and continue with their business. The information you share over here is nice peter. Small entrepreneur will get a great help from your provided information.[/quote:252nopeg] Good points. Also, there's no successful business without a settled budget for this and that so you really have to mange the money inside the pocket, the assets/investments as well as the liquid ones so you'll always have something to grab the moment you need it the most.
Wow! - Wow, this comes in as a close second to one of the best resources listed on EC.com. The first for me was the free Camtasia Tool.
Press Release Builder Tool - Hi Shri - I would be happy to. What do you need from me? Please PM me the details. Also, if anybody has suggestions for how to make the Press Release Builder Tool more valuable please let me know!
Re: New Video - Make Money Online Selling Advertising - Hi Evan, I thought I'd been a bit dumb, but when I checked the Google Keyword Tool today I couldn't find the CPC info, so thanks for mentioning that I need to turn it on!


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