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How To Create A Budget

How To Create A Budget

by | Dec 29, 2022 | Accounting, Bookkeeping, Business, Financial Services, Outsourced Accounting, Wine Industry

We are entering the new year, which means many people are setting goals for the new year. As a business owner, you should be doing the same thing. Creating a budget is one of the best practices you can start for your business.

 

What Is a Business Budget and What Are Its Benefits?

A business operating budget is a financial plan that outlines a business’s projected expenses and revenues over a specific period, usually a year. A budget is a key tool for business owners and managers to understand the financial performance of their business, make informed decisions, and plan for the future.

A well-thought-out and designed budget will allow you to make better business decisions and feel more in control of your future. If you are still not sure you need a budget, here are some of the key benefits of having a budget:

  1. Improved financial planning: A budget allows you to plan for the financial needs of your business, including projected expenses and revenues, if you need to hire, if you need to invest in new assets, and, more importantly, if you have the cash flow for your business goal. By creating a budget, you can identify potential financial challenges and opportunities and take steps to address them.
  2. Enhanced decision-making: A budget can help you make informed decisions about allocating resources and making trade-offs between different priorities. The budgeting process should inform you what you are limited to doing by your current business setup and if you need to take action if you want to expand or grow.
  3. Increased accountability: A budget can help you hold yourself and your team accountable for meeting financial goals and targets. By regularly reviewing your budget and comparing it to actual performance, you can identify areas where you are over or under budget and take corrective action. It will also provide the road map on how your team can spend and give them direction to execute their goals.
  4. Improved communication: A budget can help you communicate your financial goals and plans to your team and stakeholders, such as investors or lenders. This can help ensure that everyone is aligned and working towards the same financial objectives. It can act as an early warning system for potential issues and provide guidance on financial needs if you are planning for growth or expansion.

Now that we have established that a budget is important and a worthwhile exercise, the question is, how do I create a budget?

Protea Financial Creating a Budget for Your Business

Budget Creation Basics

Here are the basics of building a business budget:

  1. Determine your budget period: For most, this will be the next calendar year but the first step is to choose a budget period that aligns with your business goals and objectives. For example, if you are starting a new business, create a budget for the first six months, the first year, the remainder of this calendar year, and the next. Setting the budget period allows you to think about a period and focus on those goals and expectations.
  2. Identify your budget categories: You will need to determine the categories of expenses and revenues relevant to your business. Common types of expenses include payroll, rent, utilities, marketing, and supplies. For income, the categories include sales of products, service fees, and grants. There may be subcategories under each of the main categories. By know which revenue and expenses you plan on budgeting for allows you to become more granular and focused in your approach to building this plan.
  3. Gather financial data: Collect financial data from past periods or other sources, such as market research or industry benchmarks, to help you estimate the amounts for each budget category. For most businesses, starting with historicals is a great place to begin. Your history will give you an idea of your future and allow you to adjust based on the information you have or the new projects you plan to implement.
  4. Create a budget template: Use a spreadsheet or budgeting software to create a budget template that includes all the budget categories and subcategories relevant to your business. You can either build your own, hire someone to build a template, or download one from a reliable source.
  5. Estimate expenses and revenues: Using the financial data you have gathered, estimate the amounts for each budget category for the budget period. This is the work part. Once you know what you plan to budget for, you can do the hard work. Most good budgets will take into account information from your team. Gathering insight and information from the people who are meant to execute the goal will allow you to gain buy-in. Also, most good budgets will take a few rounds. This is a necessary process and not one that should be rushed. Once all information is gathered, it should be reviewed with all stakeholders and adjusted as necessary. Obtaining insight from others will help get everyone’s approval that it is achievable and ensure everyone is working towards the goal of execution. 
  6. Monitor and update the budget: Budgets are a tool that should be used to drive the business towards its goals. It is important to regularly review and see how you are performing towards these goals. The review should provide insight into where you need to improve and where you are doing well. It is also necessary to update the budget as required. Your business environment might change, and different opportunities and pitfalls may arise. It is critical that the budget stays accurate and reflects these changes in your business’s financial position or goals.

With these steps, you can create a comprehensive and accurate business operating budget that will help you understand and manage the financial performance of your business. A well-executed budget will provide you and your business insight to move toward your goals.

Protea Financial Business Budget

Protea Financial Can Help You Create a Budget for Your Business

Now, remember, the budgeting process takes work. Sometimes you will need to get help. If you do not have the capabilities internally or want additional insight into the process, consider outsourcing your needs. Reaching out to an outsourced option like the professionals here at Protea Financial might be a great way to get the best out of your budgeting process by bringing in experts. Contact us today and we can help!

Let Protea Financial Help You Create a Budget for Your Business

If you want help learning how to create a budget for your business, or you need someone to do it for you, contact the professionals here at Protea Financial. 

Call Protea Financial Today!
Starting with a Budget Can Help New Wineries Succeed

Starting with a Budget Can Help New Wineries Succeed

by | Sep 9, 2021 | Accounting, Bookkeeping, Financial Services, Wine Industry

Starting your own winery may be a dream, but you must understand, with that dream comes expenses. Many who enjoy a glass of wine have thought about what it would be like to start their own winery. Starting any business is a challenge, and this is especially true in the wine industry. Thankfully, you can use our experience and expertise to help make this process easier. Here are some important notes for creating a winery budget in general.

What Goes Into a Business Budget?

If you want to be able to apply a business budget to a winery, you need to step back and look at what it takes to create a business budget. There are many steps involved in this process, but overall, here are the basics:

  • An outline of expenses (both fixed and flexible) and returns on a monthly or annual basis
  • One-off costs, such as equipment or software purchases
  • Projected sources of revenue outside of the product you plan to create, if any
  • A list of areas where the expenses may vary and guidelines

Ideally, you do not want to spend more than you make, but when you apply this to a winery, that is rarely the case to start. That is because wineries take time to make a profit. They need to mature before a harvest becomes available, so you need to budget for that time.

How a Budget Changes for Wineries

Your budget for a winery starts with the purchase of land in most instances. Rarely are you going to go out and buy a fully functional winery to start. Your upfront costs are going to include the land, plants, and the actual planting process. Your one-off costs can include any equipment you need on top of these costs, just to get off the ground. The cost of land is as cheap as it is going to be, so buying now is the best option, even if you cannot start your winery right away. The cost of one acre of land in California’s wine region is expected to climb to approximately $1,000,000 by 2050.

Down the line, you will need to factor in other costs, such as

  • Fermentation equipment
  • Harvesting equipment and labor
  • Equipment to make the wine itself
  • Bottling equipment
  • Storage facility
  • Licensing
  • Trademark
  • Wages for any employees
  • Branding following a label approval
  • And more

Your winery should be able to begin making wine in three to five years from when the land is planted. However, there are some deterrents to that timeline. You may struggle with crops due to limited water resources, frost, diseases that can damage plants, or even pests, and all of this only if your plans to plant are approved by the local government. All of this may slow your return. 

Also you need to consider that wineries are seasonal. That means you need to budget costs that you must pay all year, even if you only harvest or produce wine part of the year.

Tools to Help You Stay Financially Focused

There are many tools you have at your disposal to remain focused on keeping your finances in order. One of those tools is your budget. It gives you a reminder of where your money is coming from or going to at all times. However, that is not the only tool you can use. 

Setting up a spreadsheet may be a simple, yet effective way for you to visualize your flow of money. Most accounting software titles have something like this you can use. However, if you do not have one of those already, this is an inexpensive alternative. Just understand that you must be dedicated to adding in all the information you want to track. If you forget, you will have to go back, track down the information, and put it all in. 

Another tool you may want to use should be software to manage your inventory. You need to track your plants, their age and location, how much produce they provided, and more. This is an essential part of the winemaking process, since it will factor into how much you charge per bottle. 

Payroll is another aspect of starting a winery you must keep in mind. Unless your winery is incredibly small, you will need help. This means paychecks for the employees you hire. Payroll is more than ensuring they get their hourly wage, as there are taxes at the federal level, most states have state taxes as well, unemployment, Social Security, and more. These are numbers you must track carefully, as being wrong can lead to IRS penalties and fines. 

Protea Financial Starting with a Budget Can Help New Wineries Succeed

Why is Winery Accounting Important?

The best tool you have at your disposal to remain focused on finances as you start a winery is going to be a winery accountant. They understand what goes into starting a winery, they have experience in setting up and following budgets, and they can help with things like payroll and managing your inventory. They become a tool that minimizes your time requirements while also saving you money. 

Great bookkeeping is the backbone of any successful business. Many businesses believe that they can track the books themselves. Unfortunately, this can lead to missed expenses, incorrect payments, and a budget that does not cover everything it should. The best thing any business can do to ensure that the financials are always in order and nothing is overlooked is to hire a bookkeeper. 

By putting a professional in charge of taking care of day-to-day activities like your finances, you can then pay attention to any part of your winery that would require your specific expertise. You get peace of mind knowing that your employees will always be paid when they should be. Plus, you also have the security of knowing your taxes are correctly filed and all your documentation is current. Those are simple assurances you get when you hire a bookkeeper for your winery.

Winery Accountants Keep You Focused

Understanding the costs of running a wine business can help you create the most appropriate budget for your winery. Do you have everything at your winery insured? This is an expense that is overlooked at times, and that could lead to major problems down the line. It is vital you have everything insured if you want to run and grow your winery into a solid business. The insurance should cover both your equipment and your property.

When you begin having a harvest, you also need a winery accountant as they can help you determine your cost of making wine. If you sell the wine for too little, you may lose money. However, if you price it too high, then no one is likely to buy. You need to know the right amount to sell it for, and that should be based on the exact costs you have per bottle you create.

Turn to Protea Financial for Help with Your Winery Expenses

Wine is the drink of choice for many of us after a long day at work or just to warm us up on a cold winter day. For those who have considered starting a winery, make sure you have the right approach in mind. Focus on your budget and expenses from the start.

Making wine is a challenge, but those challenges become easier when you have the right tools. A winery accountant is a tool that is necessary if you want to truly succeed in your endeavor. You want someone that can use their experience and knowledge to help you push forward. You need someone you can trust to go through this experience with you.

Turn to the experienced winery accountants of Protea Financial. We can answer any question you may have on financials, budgeting, or accounting for your winery. We are here to help.