Budgets…..Why?

Budget….Just the word can send someone into hysteria, or, send them to sleep…

 

In business, a budget is an extremely useful strategic tool that will help you manage your business, its expenses, obligations and cashflow.  Preparing and reviewing your budget could mean the difference between realising the success of your business or the heartbreak of having to close your doors.

 

A budget assists in taking the guess work out of the financial management the business, put simply, it is predicting when your money is likely to come in; and when and where the business needs it to go out.

 

OK, here we go……

 

Helps you to project income trends in your industry

All industries have busy and quiet times, whether it is annual or seasonal, being aware of your industry trends is important so that during the busy times you can keep a little extra aside to help for when you hit the less fruitful times.

If you look back at the last few years of sales and have a look at the trends, ask yourself – when are the biggest sales months? And, which are the slower months that the larger ones need to compensate for?

Most people will have a good idea of this without having to look back at their figures, but sometimes your actual historical sales figures compared with what you recollect can be completely different.

 

Be prepared for large annual costs

A budget will show you when large expenses, such as insurance and registrations are due so you can have the money there to pay when it the bill arrives.  It is much easier (and a hell of a lot less stressful) than receiving the invoice and trying to scrape the money together. Or even worse, having to put off a capital expenditure purchase, because you don’t have the cashflow.

No one likes bill-shock, so if it’s in your budget you will know exactly when it has to be paid and have the funds set aside for it.

 

Work out your own weekly wage or drawings that your business can manage

Rather than looking at your bank balance to work out what you can withdraw each week, you can work out your expected profit for the year – this will give you an educated idea of what your business can afford to pay you.   Remember, you have to enough to enjoy your life too!

Don’t forget to account for this amount as it will form part of your cashflow.

 

Purchasing or leasing new equipment

During the running of a business you will, from time to time, want to (or be forced to) purchase equipment to run your business. To be able to budget for this, put money aside or work out how much your business can afford in repayments before you sign a contract.

 

Marketing and advertising

Being able to reinvest into your business by advertising and marketing can increase your sales (if it’s done right) but you need to know how much your business can afford to dedicate to advertising.

See where your business is leaking.

With a budget you might be surprised how much you are spending on different areas of your business that you may not need to.  It’s easy to spend money on things you don’t really need, and it can accumulate very quickly into large amounts.

 

Iron out the peaks and troughs of cashflow

A business Budget will help your cashflow throughout the year, to know when expenses are coming up and being prepared for it.  I don’t know anyone who likes a surprise bill…

 

Making management decisions for your business

All of the information you put into your budget to create a meaningful financial report that will help you make solid management decisions, on what your business can and can’t afford.

Like employing new staff, upgrading your car or attending conferences.

 

You will feel more in control of your business

You will feel a sense of control of your business.  Knowing what you can reasonably expect and knowing you have budgeted for all the foreseeable costs that are coming up is a seriously great remedy for a good night’s sleep for business owners.

 

Constantly and consistently review your budget

A business budget should never be a set and forget exercise, it should be reviewed regularly.

Budgets must be reviewed regularly during the year to make sure you are on track or to re-adjust figures that have not been accurate or to account for the unforeseen. A budget is not a best-case scenario or what you would like to be earning, it is a reasonable expectation of the figures.