Like anything in life preparation and planning prevents poor performance. This is especially true when it comes to setting up and running a business and ensuring you have all the tools and foundations in place that will help put you on the right pathway. This is also true regardless of the size of your business. It is a common perception that a small business doesn’t need a budget – but every business needs a budget!
What is a budget?
A budget is a vital business tool that allows you to plan, make decisions, keep control and analyse your businesses finance. The budget should be a living document and not just a set and forget. If sales are not where you expected them to be, then you need to be reviewing your budget and adjusting the expenses accordingly. Similarly, if sales or potential sales are much higher than anticipated you may need to be budgeting for some R&D, additional staff, change to premises or any number of other scenarios.
A budget is a financial plan and when creating your budget, you should be thinking about where you want to be, not just in the next 12 months, but in 2 years, 5 years and 10 years also. Budgets consist of fixed costs, like rent or lease costs, that can easily be identified; variable costs, like fuel or wages, that can be estimated using potential volumes of activity; and costs of goods sold, which should be directly proportional to the businesses trading activity.
Updating Budgets
Things change and you may need to complete a re-forecast of your budget at regular intervals during the budget period. If, for example, fuel costs are volatile and your business is heavily impacted by them, you may need to closely follow trends when setting budgets around this. If your business buys or sells globally, exchange rates may have a big impact on your business. It may simply be that you were planning to win a big contract that you didn’t win and so won’t have the planned sales. Whatever the scenario you need to continually be reviewing against your budget.
Loans and Investment
Any funding you seek for your business whether it be in the form of a loan or investment will require details of what has happened in the past and what you believe will happen in the future. This is both accurate accounts to date for what has been happening and budgets showing where you believe you will be. Often you will be asked to report against your budget, this is the comparison between your actual costs and revenue to those budgeted.
To Summarise
The saying knowledge is power is never more accurate than when it comes to planning for your business. This can be very time consuming and overwhelming. If numbers are not your thing or this is not something you are comfortable with then we suggest a bookkeeper to sort this for you. That leaves you able to get on with running your business safe in the knowledge that your accounts are being taken care of.
3rd Arm Admin have assisted many businesses of all sizes with the preparation and monitoring of their budgets. If this is something you feel we could help you with then please call the team on 04 232 9199 or fill out your details below and we will be in touch.
