A great an effective way to make your business stay profitable is to build a realistic budget. A realistic budget will adopt the approach of costs estimation, revenue forecasting, and also allow substantial room for meaningful profit margin. Indeed, a budget helps your business attain success on the long run.

Step 1: Know How Budgeting Works

First, you need to understand the basics of budgeting by familiarizing yourself with how budgeting works. A budget provides a road map for your business since it is designed to show you what you are likely to spend and make as income over a given time frame.

A realistic budget will include informed estimates of your revenues and how you plan to spend in a precise manner. When you follow a realistic budget thoroughly, you will greatly increase your chances of building a profitable business and achieving your set goals.

Practical example: If you’re creating a budget for the coming year, your budget should spell out your estimated incomes, make a plan for expenses that will be far less than the total estimated incomes to guarantee you will make profit. A great tip for keeping expenses low is to adopt outsourcing in running your business.

Step #2: Understand the Importance of Budgeting

Budgeting is important in business because it’s a great tool for matching your spending to your earning. If you don’t have a clear direction and plan for spending, you can easily go overboard with your spending, which in turn leads to increase in debt, losses, and potential fold-up of your business. You definitely would not want that to happen.

Practical example: This is to show how important it is to weigh each business expense against your budget. Now, let’s assume you suddenly found out it’s time to hire more employees; you have to consult your budget first to determine the amount of estimated surplus revenue that will come in. Subsequently, you can calculate what it will take to maintain the new hires and determine if the surplus budget can accommodate that.

A great tip on how to hire additional employees without spending much is to opt for outsourcing solution. In essence, consider outsourcing the tasks in question rather than hire full-time employees.

Step #3: Get to Know the Different Elements of a Budget

You should get to know the different components of a business budget. In this case, you should focus on three basic components, namely;

• Revenues – also referred to as sales
• Expenses/total costs
• Profits

Revenue or sales refer to the amount of income that your business generates from different sources. So, your business budget should include an estimated amount of your future revenues.

Expenses/Total Costs: These include semi-variable costs, fixed costs and variable costs of generating sales.

Finally, your business budget should also project estimated profit which is arrived at by subtracting total costs from revenue.

Daven Michaels is a New York Times Best Selling Author and CEO of premiere global outsourcing company, 123Employee. The company employs hundreds of young bright individuals on three continents. His International event, Beyond Marketing Live! inspires entrepreneurs build & grow their business with revolutionary new theories and systems allowing them to design the business and personal lifestyle of their dreams.