Allowance is a leeway, a sort of buffer if you will, it is the amount that is permitted within certain boundaries and set for a specific purpose.
It can also be the term used in some countries for Pocket Money.
However from my perspective I apply this to my businesses.
I own a couple of online businesses that are those nasty sort that give commissions to members on a tier 1 and 2 level. I say Nasty because basically the businesses offer a product, and essentially that should be enough, but as people want to earn more than the product they pay for, a commission structure is developed. Now I do admit that the commission structure not only benefits the customers but also benefits the business as it is an incentive for customers to bring in more customers top the business,.
As a business owner I always ensure that I have an allowance account that would cover any potential commission payments that I need to make. I have a fund within my fund that designates a certain percentage of all business earnings as an allowance to cover the costs incurred.
This brings me to the point of budgeting, making sure that no matter what business you run or are involved in, make sure that you develop an accounting system that allows for every contingency of the business and then develop a system whereby percentages of earnings are allocated to the correct fund application so there is never a need to dip into the section that is, say, an allowance for hosting, to pay off commissions, or vica verca.
Budgeting is an accountable process that should be transparent and the correct allowances made to the correct aspects.
I also know of a few offline business that offer referral programs to their customers. If their customers refer others to their business then they offer discounts, gift packs and often free stuff. These business make an allowance in their fund for such activities, I admit that as their fund grows that is specifically allocated to certain programs, and no claims are made on these programs they siphon off a certain percentage as a way of making their books balance.
This is also a strategic action, as allowances are made for set time periods, eg; there is an expectation that a certain amount of claims will be made in a certain amount of time, if said amount is not made ten a percentage is taken off and channelled elsewhere as a way of maintaining a strategic allowance in the referral fund.
The short of the long is, that when budgeting for your business, ensure that you are putting away a balanced percentage of your overall income to certain activities within that business.
Ensure that you make allowances for left field contingencies and ensure that you business is accountable on all levels.
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