Many business owners wait until it is too late to evaluate the advantages of having a financial plan. A financial plan is essential to a business’s continued success, and it is a fundamental part of establishing a new business, but why?
A business plan establishes whether the business can cover all expenses, and it identifies the potential financial risk of not being able to cover expenses. Financial planning can be used to project how long a business can operate without revenue and how much revenue is required to get the business out of the red (debt) and stay there.
Some people make things more complicated than necessary. They deconstruct and examine each and every point of interest. They love the diagrams, conjectures, and included articles that regularly show up in the monetary press. Truth be told, these are the very things that put numerous people off of doing their own particular budget planning—everything appears to be muddled and needlessly complex. Budgeting money is much simpler than it is sometimes made out to be. It may not feel simple to put into practice, but the actual practice is very basic. All you need to get started is a sheet of paper and a pen or pencil.
Make a List of Your Regular Expenses
Start with your basic living expenses. These are the things you absolutely must pay to survive in this world. The list should include:
• Rent or mortgage payments
• Utility bills (electricity, gas, water)
• Commuting expenses (gas, automobile expenses, public transportation costs)
• Any other regular payments, such as medical insurance, loans
By making a list, you will discover your cost of living. You may think you already know, but not many people take the time to examine their expenses in an itemized format. Many are shocked to see how much they spend when it is broken down and then added up. Fear of facing the reality of how much you spend may be one reason you’ve avoided performing this activity. However, this is the very reason you need to commit to budgeting, and it will help you to understand where and how money is spent, and where potential reductions can be made.
The Rewards Are Great
The advantages of budget planning are multitudinous: knowing where and how you are spending, gaining a sense of financial control, creating the ability to reduce as necessary, identifying ways to save, and recognizing the difference between needs and wants. Over time, there is a continued sense of positive return, like developing a savings account that grows instead of one that dwindles over the course of the month.
By ignoring your budget—in particular, how your money is spent—you relinquish control of your finances, which bear a large amount of control over your everyday life. With some very basic tools (pen and paper, an Excel spreadsheet or even QuickBooks), a small amount of time, and minimal effort, you can begin to reshape your monetary future.