The truth is the government can’t keep running in the red forever. The government might be operating on a budget deficit currently but it has the ability to borrow money regardless of how poorly it is managing its resources. Additionally, the government pays interest only on its debt which allows it to meet those debt obligations with the tax revenues currently coming in. However, if the government continues to spend without regard for the accumulation of debt there will be a time when debt and other operational obligations will exceed the tax revenues coming into its coffers. It will be at that time that the government will have to reduce operational spending, increase taxes or default on their loans.
Well, fortunately or unfortunately your business can’t operate without a balanced budget. The primary reason is that you’d need a source to obtain those additional funds from and banks aren’t going to look favorably upon a business running a deficit. Friends and family might be willing to help for a short period of time if they felt you could turn your business around and run profitably. However, the reality is that the only person you could look to for funds would be yourself and within time you to would have more debt than revenues coming in and would have to default on your loans.
Okay, having stated the obvious … that you need a budget, I’ll try to quickly highlight some of the main elements to consider. The most basic information can be obtained from your current Income and Expense Statement which indicates how much revenue you are bringing in from all sources and all the expenses you incur to derive that revenue. As I mentioned, this is the most basic elements of a budget and you can work from there to expand in
more detail all the possible sources of revenue and expenses.
Income can be derived from many sources depending upon the business you are in. As an example my firm is in the real estate business offering a wide variety of services. My budget has income line items for property
management, brokerage, development, construction oversight, maintenance services, consulting, investment revenue and interest. These could be expanded further if I desired to break down one source of income further, such as property management, into Retail, Office, Apartments, Warehouse, industrial and flex. As you can see you can be as general or specific as you’d like.
Expenses can be incurred from many sources depending upon the business you are in. Some are quite similar regardless of your business, such as rent, salaries, office expense and utilities. As with the example of my real estate firm additional expense items for maintenance materials expense, coop commission expense and advertising are also needed. These also could be expanded if I desired to break down one source of expense further, such as salaries, into executive management, operations management, administration, property management and maintenance. Again you can be as general or specific as needed.
Once the obvious budget numbers have been put into place it is now time to look at your bottom line, income less expenses, to see if there are any profits. If there are profits you can now ask yourself some questions about discretionary spending. Are there capital improvements you’d like to make that will streamline operations or increase your company’s earning capacity? If so, are there adequate funds on the bottom line to support these additional expenses? Is now the proper time to incur these improvements or can they be postponed for another year?
See how quickly a budget can come together. Doesn’t it make you wonder how the government can operate for two years without having an approved budget? Unfortunately the reason the government doesn’t have a budget is because its bottom line in in the red and there are still people in the government who want to continue to spend. Maybe they should refer to the previous paragraphs and take Lesson 101 in Budget Making.