Your guide to setting up a Business Budget
In today’s dynamic business landscape, effective financial planning is essential for success. A business budget serves as a roadmap for managing your finances, helping you allocate resources wisely, identify growth opportunities, and navigate potential challenges.
Setting up a business budget may seem daunting at first, but fear not! We have outlined a step-by-step roadmap below to help you embark on this journey with confidence. Your dedicated account manager will also assist with any queries you have in setting up your budget.
It is important to note that a budget does not reflect the cash coming in or going out of your account (your liquidity), but rather your profitability for the period. Therefore, it also excludes any VAT you charge on sales or claims on purchases, as it does not affect your profitability. Excluding VAT in a budget also provides a clearer picture of the company’s performance and makes it easier to compare against previous periods or even other companies.
1. Gather financial information:
Start by reviewing your latest management accounts and/ or financial statements to get a clear picture of your current financial position, as this will serve as a basis for your budget. This is useful to identify any historical trends you may expect to continue, as well as setting up targets.
2. Forecast Sales Revenue:
Estimate your sales revenue for the budget period based on past performance, market trends, sales projections, and any other relevant factors. Break down your sales forecast by product/service categories, if required. Be sure to consider both recurring and one-time income sources.
3. Estimate Expenses:
Identify and list all the expenses your business incurs. This includes fixed costs that you incur every month (rent, salaries, and other overheads) and variable costs that fluctuate based on sales or production volumes (materials, marketing, utilities, etc.). Estimate each expense item for the budget period based on historical data, vendor quotes, industry benchmarks, or any other relevant information. Be sure to consider both recurring and one-time expenses you expect to incur.
4. Factor in Seasonal Trends:
If your business experiences seasonal fluctuations in sales or expenses, adjust your budget accordingly to account for these variations.
5. Allocate Funds for Contingencies:
Set aside a portion of your budget for unexpected expenses. This buffer helps ensure you can cover unforeseen costs without derailing your budget.
6. Calculate Net Profit:
Calculate the difference between your total income and total expenses to determine your projected net profit for the budget period.
7. Review and Revise:
Review your budget regularly to track your actual income and expenses against your projections. Compare actual performance with budgeted figures to identify any variances that need attention or areas where adjustments may be needed. The best way to do this is to ask your account manager to include your budget in the reporting software we use to generate your management accounts. This way your actual figures can be compared to the budget automatically and show you any variances without having to do a bunch of calculations yourself. Revise your budget as necessary to reflect changing circumstances or new information.
Remember, effective budgeting is an ongoing process that requires careful planning, monitoring, and adjustment. With the right tools and strategies in place and working with your dedicated account manager to keep the accounts up to date, you can confidently navigate the financial landscape and achieve your business objectives.
Here is a link to a simple budgeting template that you can download and use to set up your budget and share with your account manager
– The Beancounter Simple Budget template
Wishing you all the best on your journey to financial success!