Just about every business, even one-person businesses, needs some kind of spending plan or some means of looking in advance at the money that must go out relative to the money projected to come in. That, in essence, defines a budget: a projection of both income and expenses for a coming period of time.
Some principles and practical rules of budgeting for the small business include:
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Expenses must always be charged to the department or activity incurring the expenditures.
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Every item of expense in the business must be under someone's direct control.
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Managers responsible for complying with an expense budget must participate in preparing the budget.
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No one should be held responsible for expenditures over which he or she has no control.
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Unused funds budgeted for expenses may not be carried over from one year's budget to the next.
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Unused capital-budget funds may not be transferred into operating expenses or vice versa.
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All individual expenditures must be approved by the appropriate levels of responsibility.
A breakdown of the expenses charged to a department or activity, such as salaries, benefits, supplies, travel, postage, etc., is essential. In other words, you must keep track of how much money is going into each category of expense, as well as how much you are spending in total.
