Last year, I wrote a blog series entitled "Budgeting for Small Business". In this series, I described the steps that most businesses take when producing a company-wide budget. These steps are:
- Sales Revenue Budget. This is the revenue you expect to make during the period from selling your products or services.
- Production Budget. These are the expenses that are directly associated with producing your products or services.
- General and Administrative Budget (sometimes called an Overhead Budget). These are the expenses that cannot be directly tied to producing a product or service, such as non-production related payroll, depreciation, sales and marketing, rent, insurance, and bad debt.
- Capital Expenditure Budget. This is where you estimate the expense for the major purchases, such as machinery or automobiles, you plan to make during the period.
- Interest and Tax Budget. These are all the revenues and expenses that are not directly related to the operations of the company, but do have an effect on the income or loss used for tax purposes.
- Cash Flow Budget. This is where you estimate the actual cash you will receive and the actual cash expenditures that will be made during a certain period.
This budgeting process works for most companies because most industries are sales driven. By this I mean that most firms can create a budget from the top-down by forecasting sales because sales to customers are regular and routine.
The construction industry is unique in that it is project driven instead of sales driven.