How to Create a Proposed Annual Budget for Your Business

It is very easy to look to the past and see how well or poorly your company did in a given year. Looking to the future and predicting the future success or failure of your business is much more difficult. There are no guarantees that a forecast will be correct, but failing to make a forecast is a lack of planning on your company's part. Forecasting an annual budget for your business helps you determine where your needs are not only for funding, but personnel as well.

Instructions

    • 1

      Determine the amount of money that your company has made in gross sales in the past year. This will be used to represent your expenses that your company has on an annual basis in percentage form.

    • 2

      Calculate your expenses for the past year for each category that your company had an expense occur in. Some examples of categories can include labor, water, electricity, advertising, manufacturing, transportation and legal expenses.

    • 3

      Take the total for each individual expense category and divide it by the gross sales number that you calculated in Step 1. This will express each of your expenses as a percentage of your gross sales for your company in the past year.

    • 4

      Forecast your expected gross sales volume for the next year. This calculation can be made by your company internally, or you can hire a consultant to help you forecast the sales volume for the coming year.

    • 5

      Take the percentage for each expense category you calculated in Step 3, and multiply that percentage times the upcoming year's projected gross sales volume. This will allow you to estimate your expenses that you will encounter in the coming year as a percentage of your gross sales based on the percentages from the previous year. The totals will be different, because they will be based on the estimated gross sales volume instead of last year's sales volume.

    • 6

      Budget for the upcoming business year for your company using the numbers that you calculated in Step 5 for each of your expenses. Total these expenses and subtract them from your projected gross sales volume. The resulting number will be your anticipated profit or loss based on your proposed annual budget for your business.

Tips & Warnings

  • If your business has been existing for a long period of time, you might want to calculate Step 3 for each of the past 5 or 10 years and then average your percentages for each expense category to avoid one year being relied on too heavily.
  • Forecasting an annual budget is an estimate. Be prepared to change your spending habits during the course of the year as the actual sales and expenses are realized.
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