You may want to take a moment and refresh yourself with Budgeting Blogs 1 and 2. It has taken me more time than anticipated to complete my budget process here at The Chamber and I now am ready to help you finish up as well. Now that you have met with key personnel or those persons most able to assist in contributing valuable information for projecting the upcoming years income and expenses you will insert the values in the appropriate month(s) or the unassigned column depending on the format you have chosen to use and you can see the monthly Net Gain/Loss for each month. Click here to see the example.
A monthly line item expense every company should have is depreciation. Depreciation is a noncash expense that reduces the value of an asset as a result of age, wear and tear, or obsolescence. Most assets lose their value over a period of time raging from five years to 30 years depending on the purchase. For example, if your company purchased new office furniture (desk, chair, filing cabinet and bookshelf) for $2293.72 and a new computer and printer for $2326.01 in 2009 for a total of $4619.73 it shouldn’t be expensed when you paid for it but should have considered it as a Fixed Asset in the bookkeeping system which lowers actual cash in the bank (Capital Expenditure) but does not put any value in any expense as a daily operating expense. You spread the expense over five years (60 months) in an expense column known as depreciation in the amount in this case of $76.99 per month. Another example would be a large purchase such as a building this asset would be depreciated over the entire time of the loan, say 30 years for instance. All capital expenses purchases usually with a value of $500 or more can and should be expensed this way.
At this time you will be adding to the bottom of your spreadsheet a couple of line items that will determine the estimated cash flow of the company for the year. Take the Net Gain/Loss line and copy it below the existing line and add a line labeled Add Depreciation (you add back in the depreciation expense you have been allocating monthly because no money is actually spent in the month) and add another line and label it Less Principal Payments (this is used if you have a mortgage or leased equipment that payment extend past one year and are considered Long Term Liabilities or Notes Payable). The monthly payments for this are not considered an expense for doing business, they are a liability and this must be accounted for in order to project the estimated monthly cash flow for your company. Click here to see the example.
I hope that my tidbits of information have been helpful in creating a budget and I know if you stay within the guideline you set for the business and when the year has ended there should be no surprises as to the profit or loss that has been attained.