10 December 2019

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3 Reasons Why You Need A Budget

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A budget is one of the basic tools for good money management. I see so many first time entrepreneurs and sometimes even experienced entrepreneurs who don’t have a budget. Then, one day they wake up and they realize they’ve run out of money. This is even more important for a start-up because a budget establishes good financial control for a start-up and during the early years of a start-up, money needs to be invested wisely.

I’ve listed 3 reasons why you need a budget and how it could save your financial life.

Reason #1 To estimate future money needs

If you don’t know how much money you will be spending in the coming month then how could you tell whether you will have any money left in your bank account at the end of the month?

If you estimate that you will be spending Rs 50,000 the coming month and you have a bank balance of only Rs 10,000 then your budget is going to tell you that you are going to be short of Rs 40,000 by the end of the month.

Knowing this you may want to cut down your expenditures or sell some old stuff that you don’t use to raise the money needed for your estimated expenditures.

Reason #2 To check for leaks in your financial system

When you create a budget, it gives you a complete blue print of all the expenditures you expect to incur in the future. This gives you a clear picture of all the expenses that are a good return on investment. In your startup years, it is always crucial to cut down on expenditures that are not a good return on investment. Stick to the basics and once you become profitable, you can luxuriate.

Reason #3 Maintain good financial control

Without a budget, it is very easy to lose control over your finances and overspend. Having a budget creates good financial control. Imagine, if you got excited about a particular product or marketing campaign and ended up spending more than you have, this would create additional pressure on your start-up during it’s early years that may set you back by a few years. So, creating a budget helps you maintain solid financial control over your start-up.

How to create a budget?

Now that you are convinced that you need a budget. Let’s identify a process to create an effective budget. Creating a budget is very simple and it should not take you more than 15 minutes. A budget can be weekly, monthly or annual. But what has worked best for me is a monthly budget rather than a weekly budget.

Step 1: Make a list of all the expected cash outflows for the month.

Hint: Usually, most cash outflows are similar to your previous month. So, look at your previous month’s cash outflows for what your future expenses might look like.

Step 2: It is a good idea to segregate your budget into categories and sub-categories. It may also be helpful to segregate your budget into regular expenses and irregular expenses.

Step 3: Add up the line items on your budget and your budget is done.

Find below a budget template you can use for your business.

Monthly Budget: August 2011



Sales and Marketing Expenses


Sales and Marketing Payroll


Marketing program expenses


Other Sales and Marketing Expenses




Total Sales and Marketing Expenses




General and Administrative Expenses

General and Administrative Payroll




Printing & Stationary




Payroll Taxes


Office expenses


Outlet maintenance


Owners association fees






Professional fees


Legal fees


Travel & conveyance


Bank charges


Staff welfare


Total General and Administrative Expenses




Other Expenses:


Other Payroll




Other Expenses




Total Other Expenses




Total Operating Expenses


Last Updated ( Thursday, 03 November 2011 14:14 )  

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