Capital Budgeting Techniques for Small Scale Business
14

Feb 2020

Budgeting is all about making all the financial transaction decision beforehand. For running a successful business in the UAE budgeting is necessary. The business may be small, medium or large the budget estimation is necessary. Capital budgeting is somehow a crucial estimation for a business. One of the most crucial parts of any company is the management of capital. The use of capital budgeting techniques is hence a significant tool in the capital Management system. Capital budgeting can be defined as the “Sum of processes of generating, evaluating, analyzing and following up on capital expenditures”.

Hence, capital budgeting techniques consist of some useful tools with which financial managers can use to estimate the criteria for investing capital into available opportunities. A minor mistake in its capital budgeting process can cause a serious effect on the financial position of the company in the future. The pressure on a business manager who handles all the financial statements is visibly enormous. Therefore, depending on the demands and supply of the company, the financial manager has to use capital budgeting techniques that would maximize the value of the company.

Finding Opportunities

The first step of capital budgeting is to identify the business goal of your business and the potential needs and opportunities regarding the investments and projects. This is kind of a cumbersome process, as you have to decide all the needs of your organization. For small scale business, you have to determine the business goal according to your capital structure. Things like building a factory, distributing a particular product, or anything else that will take a large initial outlay to accomplish should be evaluated. Make a list of all of the opportunities that are in front of you before moving forward.

Business Evaluation Services

After completing the list, the second thing that comes to mind is to evaluate each item. Give a glance at the opportunity list to determine if an opportunity that is relevant to your company's goals and principles and demands.  For small business valuation method deals with so many options. Some options can be immediately eliminated because they are infeasible. Others might sound appealing at first but then impractical to pursue at this time. Eliminate any options that do not meet your company goals or that clash with your individual beliefs.

Track of Cash inflow and Outflow

As you are a small business owner, you will undoubtedly need to understand the necessity of having proper knowledge of cash flow. After the valuation method, the next major step deals with the analysis of cash flow for each and every step of the capital budgeting process. To make a count on the cash inflow and outflow the organization has to maintain the accounting and bookkeeping services.

Then you will need to do an analysis of the cash flow statement of how much this project can cost. According to that, you can make your budget. Make sure that numbers are as realistic as possible. Estimate every possible cost that you can imagine for this business.

If the cost of investment is going to be far more than the profit than, this is not a project to pursue, you need to determine how much profit you want to make from a project before continuing it.

Business Consultation

If you want to make your profit bigger or do your small scale business to a successful business, then it would be advisable to hire consultants for this part of the project. JAXA chartered accountant is the renowned consultancy firm that can help and assist you with any necessary services for your business. Our company has done these types of projects before, and it has many service offers along with the in the way of advice. Our brilliant consultants can help you avoid plans that do not have any potential and help you accurately forecast cash flows.

Improvements in the Business

After following these steps it is quite necessary to build a strong network of your company and make the list of the strength and weaknesses of the company. According to that, you can improve your business. If the small scale business is making enough profit and growing gradually then it would be promoted to high scale business. Create a workforce according to the needs of the company and they should be efficient enough to deal with the adverse situation as well.

Conclusion

JAXA chartered accountant is a certified firm of business consultancy in the UAE. Accounting service, auditing service, tax handling for business, VAT registration are some of its brilliant services that are provided by the super experienced chartered accountants of JAXA. Feel free to Contact Us at any point in your business incorporation.