Now we’re sure that the idea of crunching numbers and ‘budgeting’ may not seem like the most exciting aspect of running a business,the truth is that a well-crafted water tight budget is the backbone of financial success.
This month we’re going to explore those things that you can do to ensure that you have an accurate business budget – one that will empower your organization to thrive. Let’s get started-
Step 1: Set Clear Goals
Before diving into numbers, it’s crucial to establish clear goals for your business. Ask yourself, “What do I want to achieve financially in the coming year?” How much do I want to earn? How much do I need to make as a minimum? Do you want to expand to supplying outside retailers? Take on staff?
Writing down these goals will serve as guideposts throughout the budgeting process.
Step 2: Gather Accurate Data
To create an accurate budget, you need reliable data.
Collect and review your financial records from the previous years, including income statements, cash flow statements, and balance sheets. Identify patterns, trends, and any areas that require improvement. This data will inform your budget assumptions and projections.
This is of course only relevant to you if you’re already trading. If you’re not and this is your first ever budget then START AS YOU MEAN TO GO ON!
Keep a record of everything that you purchase for your business. We’ve written a couple of blogs in the past that could be very helpful for you to have a look at – Management for your enterprise and Employment and Taxes
Step 3: Project Revenue
Forecasting your revenue is a key step in crafting a realistic budget.
Analyze your historical sales data, market trends, and industry insights to make informed revenue projections. Consider various factors that may impact your sales, such as seasonality or economic fluctuations.
Aim to be conservative in your estimates to avoid overestimating your revenue.
Again, this is only relevant if you are already actively trading, if you’re just starting out this will be more of a guessing game but hopefully it won’t take too many months of trading to get an idea of what your revenue looks like. The devil is in the detail so keep ACCURATE records.
Step 4: Estimate Expenses
Next, identify and estimate your business expenses.
Categorize them into fixed costs (e.g. rent, utilities) and variable costs (e.g. inventory, marketing). Review past expenses, research current market prices, and consult with relevant stakeholders to arrive at accurate figures.
Don’t forget to account for unforeseen expenses by including a buffer in your budget – we recommend thinking of this as approximately 20%.
Step 5: Plan for Cash Flow
Cash flow management is vital for business sustainability.
Take into account the timing of your income and expenses to ensure your cash flow remains positive throughout the year. Identify periods when cash may be tight and plan accordingly. Consider implementing measures like negotiating better payment terms with suppliers or diversifying your revenue streams.
Step 6: Monitor and Adjust
Creating a budget is not a one-time task.
Regularly monitor your actual financial performance against the budgeted figures. Analyze any discrepancies and adjust your budget if necessary. This ongoing review will help you stay on track and make informed decisions about resource allocation and future budgeting.
So there you have it, it’s not really all that difficult – or boring!
By following these steps, you’re well on your way to mastering the art of writing an accurate business budget. Remember, a well-crafted budget is a dynamic tool that empowers you to make informed financial decisions, plan for the future, and navigate the ever-changing business landscape. So, embrace the world of numbers with enthusiasm and let your budget be the guiding light to success!
For extra help or support why not book a session with one of our business mentors or enroll in one of our super helpful workshops.