Budgeting for NJ Business Owners
January 28, 2019 Leave a comment
If you’re a NJ business owner, you know it is essential to find efficient ways to keep track of your finances. Establishing a business budget can help you track and organize your financial resources so you can make informed decisions about how to run your business. But not every budget is the same and different budgets work better for different companies. There are a variety of budgets to help you manage your spending and utilize successful strategies in order to maximize your assets and revenues. Here, we lay out some of the most popular budget plans for your business:
- Master Budget
Your master budget is the big picture. It combines all of a company’s individual budgets (sales, operating expenses, income streams, etc.) to help business owners evaluate the overall performance of their business. This type of budget will give you a comprehensive overview of your company’s general financial health. This budget is best utilized by larger companies, allowing different managers to see how their departments’ progress aligns with company goals.
- Operating Budget
An operating budget is typically what business owners think of when they hear the word “budget.” This type of budget is a projected forecast of income and expenses over a specific period of time. An operating budget allows business owners to get an understanding of their business’s financial health on a weekly, monthly, and yearly basis. Over time, owners or managers can analyze this data to figure out in what areas overspending is occurring.
- Financial Budget
Unlike an operating budget, a financial budget looks beyond income and expenses to assets, liabilities, and equity. Typically, data for a financial budget is laid out in a balance sheet to provide an overview of the financial health of the business. This kind of budget is very important for determining a business’s value relative to public stock offerings, funding opportunities, or for a merger.
- Cash Flow Budget
A cash flow budget allows business owners to project how and when cash comes into and out of a business during a specific time period. This helps a business understand if they are managing their money efficiently. In analyzing a cash flow budget, a business owner can see whether or not upcoming financial obligations will be met or if they need to look into other financing options.
- Labor Budget
If your business has employees, creating a labor budget is important to help you determine how many workers you need to employ to achieve your desired level of productivity. This budget is helpful for establishing payroll costs of running your business and, in some cases, planning for the hiring of seasonal workers.
- Capital Budget
This budget is helpful for business owners preparing to purchase large assets like expensive machinery, new technology, or a bigger work space. This kind of budget establishes what the cost of the new asset is and analyzes whether or not the predicted return on investment is worth the expense of the purchase. This can help business owners plan for a big purchase as well as determine cost effectiveness.
- Strategic Plan Budget
Most businesses work under the vision of a strategic plan. A strategic plan sets up the long term goals of a business—but doesn’t always include long term budget goals. Make sure you don’t make that mistake. By including financial information in your overall vision for your business, you can better understand how you need to plan in order to create financial growth.
- Static Budget
A static budget is a financial plan that remains fixed. This a good budget for businesses that have very predictable and consistent income and expenses. Business owners are able to judge the performance of their business by comparing their static budget to the actual financial performance of their business. This can be particularly useful in monitoring a increase or decrease in sales performance.
Budgets are important to the success of any business. Besides allowing you to track your success internally, a well maintained budget can help you attract investors or secure business loans in the future. Don’t overlook the importance of creating an effective financial plan for your business. Veitengruber Law offers the long-term planning you need. Our experienced team can help you devise a sound financial plan to protect your assets and grow your business to new levels of success.
When you’re not working a 9-5 job with a stable, predictable salary dispensed into your bank account on a set schedule, budgeting for recurring monthly expenses can be a bit tricky. While being self-employed can afford you the freedom to work flexible hours, have a varied office location and the ability to do something you love, it does not always provide the easiest and most consistent stream of income to rely on. This is where careful, diligent budgeting comes in handy.
1) Always budget for the necessities first!
While you are most certainly deserving of a dreamy resort vacation this summer, that doesn’t mean it qualifies as a necessity, as your vacation can easily be delayed until you can truly afford it. Necessities solely include staples like your rent or mortgage payment; groceries, gas, medical insurance, car insurance and car payment or other required transportation costs; utilities like electricity, phone, internet, water, sewer and garbage. It is also critical that you budget for your income taxes, as they will no longer be automatically deducted from your income. Anything else not featured on the aforementioned list does not qualify as a necessity and therefore you can live without it and save up for it before purchasing it.
2) Establish an emergency fund.
If you haven’t done so already, creating an emergency fund that has enough money to sustain 3-6 months worth of your necessary expenses is an absolute must for the self-employed. Not only does this provide you with added financial security and stability, it also buys you time to find a new job or side gigs if your self-employment opportunity does not prove lucrative enough to afford your expenses.
3) Once you have your emergency fund in place and have mastered budgeting comfortably for the necessities and have some wiggle room left over in your budget each month, you can start budgeting for “little luxuries.”
When I say little luxuries, I mean just that. Not living large, but treating yourself to small and affordable indulgences in moderation but on a regular basis. This may include something as mundane as ordering a Netflix subscription and Chinese takeout once a month, or something as exhilarating as a night out at a rock climbing gym with friends depending on your tastes and interests.
Pro tip: seek out experiential luxuries whenever possible as they don’t generate physical clutter that you’ll have to deal with down the road. The memories you’ll gain are much more valuable in the long run.
4) Think big: now that you’re managing all your monthly expenses (including little luxuries) like a pro and have a solid emergency fund in place, it’s time to consider your long-term financial goals.
When you’re self-employed, saving for retirement is even more important than it is for your peers who participate in employer-sponsored retirement programs. Given that you don’t have the opportunity to participate in employer-based matching programs, you will need to be proactive and learn to not only save diligently toward your retirement fund, but also actively invest your money wisely to make it work for you. There are tons of great retirement-planning resources available online, but if you’re feeling overwhelmed at the prospect of managing your own retirement accounts, consider consulting with a local retirement specialist who can help get you on the right track. If you’re more concerned about meeting more immediate financial goals like purchasing a home or a new vehicle (or even that resort vacation), a financial planner will be able to help you adequately allocate funds for each important goal while still contributing to your retirement so that it can continue to grow as you meet your other major milestones.
Veitengruber Law can guide you through your NJ asset management needs as you get older; with advances in medical care extending life expectancies, you may be facing difficult choices over health care and your legacy. We also have close relationships with expert financial planners and NJ CPAs with whom we are happy to connect you.