Business budgeting for success needs the solid foundations of sound financial management built into its overall strategy. For that reason finances should underpin every aspect of its work. Plan and cost your activities, so your resources are properly considered.
“Failing to plan is planning to fail,” Benjamin Franklin
Likewise Franklin’s words apply to budgeting. Hence budgeting is a powerful approach which is underused in the SME world. Certainly budgeting is big deal when it comes to planning, control, and decision-making.
Business budgeting
Most noteworthy, the budget is the document which translates your planned business journey into a financial plan.
Your successful business budget:
• is prepared in advance
• may be revised monthly
• explains the costs of business activities
• based on action plans
• a monitoring tool
• forecasts all expenses
• needs to be transparent
• may be long-term or short-term
6 Steps you need
1. Make a list
First of all start making a list of the cost headings linked to your business or project. Rather like writing a shopping list. Consider one off costs, such as capital costs like furniture and computers.
Think about your ongoing expenses, such as rent, salaries, and utility costs.
Then make a list of all likely income headings, such as product sales, grants and donations.
2. Put the numbers in
Estimate the cost of each expenditure item, be realistic. Google can help you here so use it!
Look at expenses as fixed or variable:
• Fixed: remain the same throughout the year and are unaffected by business activity e.g. rent and salaries
• Variable: fluctuate according to levels of business activity e.g. material costs change according to levels of sales.
Consequently make a note of how you worked out each figure, plus items you’re not sure about. You’ll have to rely on your memory if you don’t make notes. Hence remembering what assumptions you made – enough said!
Repeat the process for each major source of income: estimate the income from each source. You’ll need notes on how each figure was arrived at. If it’s a guess or broad estimate, say so.
3. Revise the numbers
Ensure staff and management are a part of the budget conversation by sharing it with them. Talk to those responsible for delivering specific parts of the service.
Check on the items you aren’t sure about. Do you need more information?
Revise your notes. People should understand where all the figures have come from, rather than just trust you with the finances.
4. Options and what if’s
If income is less than expenditure, think about what will you do about it?
What if your income doesn’t materialise, and you have a shortfall? Think about what action you’d take? Is scaling down an option? Should you cut costs? Delay spending?
Plan for unexpected circumstances
5. Approval
Senior management team need to agree to it
6. Monitor, measure and respond
Finally keep an eye on the reality of income and costs against what you thought would happen. Also where there are material differences between reality and plan. Finally find out why and react accordingly.
We’d love to help
Contact us to see how we can help your business budgeting. For more business and finance , news, advice and tips, don’t forget to watch our weekly broadcasts, listen to our weekly podcast I Hate Numbers.
Our team have created a really useful, free Budgeting Guide to help you. We used an Arts business to illustrate, but there’s lots of good takeaways for all business.