Budgeting is one of the most important aspects not only for your business but for life in general. For anything that you need, you are going to have to think up of a budget. For a business to succeed, you are going to need materials. Materials that cost money. One of the ways businesses fail is not properly taking into account how much money you are going to need.
Below are seven things that you should take into account before you finalize your production budget!
Your Sales Forecast
What a sales forecast is, is determining how much money you are going to need for your business. By using certain tools, such as materials cost and the financial environment, you will have to take into account how much money you are going to need to successfully run your business. You should sit down at the beginning of the year and look into what you are planning to do with your business. Who do you plan to sell to, what is the public demand for your product, and see what you can come up with as far as future planning goes? While it’s not always easy predicting the future, being prepared is never a bad thing.
Plenty of sites offer templates for sales forecasting. Such as the one above that you can find on Template Archive.
Material Needed to Make Your Product
You need materials in order to create your product. You will need to see what you need exactly to make the product you are selling and realize how much you need per item. By being able to calculate this into your production budget, you can have an easier idea of how much you will spend, as well how much is needed to charge for the item in order to make a profit.
Figure Out Your Production Needs
This item correlates with the subject above. You take into the account of materials needed by how many units are needed. If you are Apple and you are coming out with the latest iPhone, you will need to calculate how many you are producing. You don’t want to make too little and therefore not have enough to make proper sales.
How Many Finished Products Do You Have?
Are you the kind of business that makes everything per order? Or do you have finished goods in your inventory and just have materials around to make more if the demand is there for it? Discover what kind of business you are and the product you are selling. In most cases, it is better to have finished products available. Again, this should be factored into your production budget.
Direct Labor Costs and Materials
Direct Labor is defined as “Direct labor cost is wages that are incurred in order to produce goods or provide services to customers”. It’s imperative to figure out how much everything costs to make and what you will exactly need.
Indirect Labor Costs and Materials
Indirect labor is defined as “Indirect labor is the cost of any labor that supports the production process, but which is not directly involved in the active conversion of materials into finished products.” This comes into play when you consider the purchasing staff, the materials handling staff, and production supervisor.
Have Backup Products
Let’s just say that you have products and you forecasted less than what was actually in demand. You need to have a safety stock of finished goods in this case. You will see this with book sales. A certain number of books will be available for sale and once that is gone, then the restocking process will go into effect. This way you are not leaving anyone out to dry when it comes to the customer wanting to purchase from you.
If you forecast and calculate properly, you will be able to assure that everything runs smoothly and that you are budgeting properly. You do not want your budget to get out of control, nor do you want to not be able to produce when something is in demand.
