Business functions and their purpose can only be fulfilled if there are solid finances supporting them. A business budget is key to making it happen.
A business budget may appear to be just about the capital, but it’s really also a good way to help a company establish their objectives and steer decisions. It does so by mapping out the available resources, thus allowing stakeholders to allocate them wisely and plan for the future.
What makes for a good business budget?
Having a well-crafted business budget can really go far in supporting decisions that produce positive outcomes. A good business budget should:
– Have clear goals and objectives: A clear statement that reports on outcomes, e.g. increasing profits by a percentage or reducing costs to a target.
– Have an organised way to track spending: This could be an Excel spreadsheet or budgeting software that logically categorises expenses.
Be flexible enough to adjust for change: Have appointed meetings with various stakeholders to reinforce or shift the budget objectives, especially in today’s rapidly evolving market.
Who should discuss and produce the business budget?
Having key stakeholders in the budgeting process is crucial, as they are representatives and can provide valuable input and perspective to keep the budget realistic yet sharp. They can include:
– Business owner(s)
– Senior management
– Department heads or managers
– Key employees (as determined by the goals)
– Accountants or financial advisors
Involving a diverse group of stakeholders ensures that the needs of the entire organisation are considered. Communicating the budget to relevant parties can also let everyone be aware of the financial goals and constraints, and foster a sense of shared responsibility.
Other than internal reviews, an organisation might find it beneficial to have an external party such as an accountant at a consultancy review the budget. This allows for objectivity, especially when an organisation finds difficulty striking consensus among internal departments.
What are some steps to take to create a stellar business budget?
Define your financial goals: Firstly, define your financial goals. This helps to focus the budget and decisions in a certain direction. Do remember to include both short-term and long-term goals ranging from quarterly to annual timelines. An example could be striving for a 20% revenue increase in sales, reducing stationary expenses by 10%, and saving $50,000 for future investments.
Analyse your existing financial situation: Include your income, expenses, and any outstanding debts or loans. This will help you to identify your priorities and cashflow, letting you make more informed decisions about how to allot them.
Determine your sources of income: Include any revenue streams, such as sales, investments, or loans. You should also consider any potential sources in the planning, such as a new product line or services that you are launching soon.
Identify your various expenses: Fixed expenses are those that remain constant each month, such as rent, salary, or insurance premiums. Variable expenses are those that fluctuate every month, such as utility or marketing costs. At this point, you’ll want to have all of them definitively organised into categories.
Create a budget template and update it fully: To create a business budget, you will need to use a template. There are many free budget templates available online (like this one from Microsoft), or just create one using a spreadsheet program. The basic columns you should have include income, fixed expenses, variable expenses, and net profit. Based on your industry, you can add relevant columns to create more accurate reports. Afterwards, fill in all your data. Remember to include even the smallest transactions (such as service fees or exchange loss) to ensure a representative budget.
Review and calibrate: After you have input all of your data, review your budget to see if it is realistic. For example, if you see that your expenses are higher than your income, you might have to cut certain costs or find additional sources of income. This is when having relevant stakeholders makes discussion easier. Know that a business budget is not a one-off exercise. It is crucial to monitor it and make adjustments as needed, especially if your business functions are innovative in nature. Track and compare your income and expenses with your budgeted amounts regularly, and adjust them as needed – and as always, with stakeholders at hand.
Consider inflation and trends: A hot-button issue in recent years, inflation can have a significant impact on your budget. It is important to consider the potential and factor it in for goals in the future. For example, you might wish to launch marketing campaigns to soften price hikes, or evaluate packaging costs to increase margins. It is also wise to include trends in your planning. Movements such as sustainability can have an impact on consumer and investor behaviour, and businesses should include them during discussions.
Seek professional help: Save time and effort by investing in a good budgeting software, or seek advice from an accountant or financial advisor. The former can automate actions and send you important notifications, while the latter can assist you in customising a business budget specific to your needs. Accountants can also provide additional consultation to cost-saving avenues, such as new grants or policies that the business can apply to their benefit.
Follow these steps to create your business budget and start moving towards your objectives. While it might seem a lot of work to some, it will become an invaluable resource for organisations when they are trying to evaluate success and implement strategies.
Still struggling to create your business budget? PLCO is a trusted consultancy with seasoned advisors that can help you build your business budget. Speak with our consultants to find out how we can support your business needs.
