Jeannie owns a small business that sells candles and other little household knick-knacks. For several years her boyfriend, who was also an accountant, handled her budget. However, since they broke up, Jeannie must now handle the budget on her own. What is the best way for Jeannie to create a realistic budget?
A. • look at the past three months of expenses
B. • copy and paste the budget from three years ago
C. • look at the previous year's budget
D. • fabricate the budget to reflect what she wants it to be
A. • look at the past three months of expenses
The best way for Jeannie to create a realistic budget is to:
Option A: Look at the past three months of expenses. This will provide her with a recent overview of her business's spending patterns and give her a realistic idea of her current financial situation. By analyzing her expenses from the past three months, Jeannie can identify any regular or recurring expenses and prioritize her spending accordingly.
Option B: Copy and paste the budget from three years ago is not recommended. This budget may not accurately reflect Jeannie's current business needs and financial situation. It's essential to base the budget on the most up-to-date information to ensure its accuracy and relevance.
Option C: Look at the previous year's budget can be helpful as it provides insights into the business's historical financial performance. However, it should not be the sole basis for creating a new budget. Jeannie should review the previous year's budget in conjunction with analyzing the past three months' expenses to have a comprehensive view of her financial situation.
Option D: Fabricating the budget to reflect what she wants it to be is not advisable. A realistic budget should be based on accurate information and realistic projections. Fabricating the budget only creates a false perception of the business's financial health and could lead to misleading decisions.
Overall, Jeannie should primarily rely on Option A: Look at the past three months of expenses, while also considering Option C: Look at the previous year's budget, to create a realistic and accurate budget for her small business.
The best way for Jeannie to create a realistic budget for her small business is by carefully analyzing her past financial records and considering the current state of her business. Option A, which suggests looking at the past three months of expenses, is usually a good starting point. Here's how Jeannie can go about it:
1. Gather financial records: Collect all the necessary business financial records, such as bank statements, invoices, receipts, and any other relevant documents.
2. Organize expenses: Sort and categorize the expenses to get a clear understanding of where the money is being spent. Categories might include inventory purchases, rent, utilities, marketing, labor costs, etc.
3. Identify patterns: Analyze the expenses over the past three months to identify any consistent patterns. Look for areas where spending might be higher or lower than anticipated or areas where adjustments can be made.
4. Evaluate revenue: Consider the income earned over the same period and compare it with the expenses. Are the sales meeting expectations, or are they falling short? Understanding the revenue will help make informed decisions about expenses.
5. Adjust or eliminate unnecessary expenses: Review each expense category and assess whether it is essential for the business's operation and growth. Identify any discretionary spending that can be reduced or eliminated entirely.
6. Set realistic goals: Based on the current financial state and trends, set realistic budgeting goals for the future. These goals should align with the business's financial objectives while accounting for any changes in the marketplace or industry.
It is important to note that Option B, copying and pasting a budget from three years ago, may not accurately reflect the current financial situation. Business situations evolve, and past budgets may not consider present challenges, growth opportunities, or changes in the market.
Option C, looking at the previous year's budget, can be a helpful reference point for Jeannie. However, it should be reviewed and adjusted based on the current financial circumstances and any changes in the business.
Option D, fabricating the budget to reflect what she wants it to be, is not recommended. A realistic budget should be based on factual information and provide an accurate representation of the business's financial health.
By following these steps and being diligent in analyzing past financial records, Jeannie can create a realistic budget that aligns with her business's goals and ultimately helps maintain financial stability.