Any business is made up of multiple parts such as staff, production line, suppliers and customers. It can be difficult to know when an issue arises before it has a major impact.
Keeping your finger on the pulse of your business enables you to set goals, make better decisions and assists in getting finance. A budget is your monitoring tool, and used correctly, it can keep your business out of ICU.
There are things you’ll need to include when preparing your budget:
- Choose a time frame for your budget depending on the needs of your business. You might choose monthly, quarterly, or yearly budgeting.
- You’ll need to enter all your fixed expenses like your salary, rent, insurance and any other known costs.
- You’ll need to enter all your variable expenses like utilities, costs of materials and staff wages.
- If you’re not sure, estimate the maximum amount you expect to spend over the budget period.
- You’ll need your expected business income for the budget period. Once your business has been running for a while you can look at past periods to get an idea of what income to expect.
Checking the Pulse
Creating a budget and hiding it away in the bottom draw is about as useful as an ashtray on a motorbike. Tracking your business progress against the budget will reveal signs of potential issues.
Nearly all of our clients use Xero as their accounting system. Xero allows you to easily track your actual income and expenses against the budget. At Oculus, we check our budget verses actuals every week with closer scrutiny at the end of each month.
Use your budget analysis to help you make business decisions. If expenses are too high, you can look for ways to cut non-essential items. When surplus funds are available you can think about reducing debt, creating a financial safety net, or growing your business.
Analysing your budget will help you find seasonal patterns. You can see if decisions like changing prices or adding a new product or service, are the right ones.
Budgeting versus Forecasting
Your budget is your planned revenue and spending. It allows you to allocate funds and set limits on what your spending should be.
Forecasts are usually more frequent, often monthly. A forecast is a closer look at the timing of income and expenses and your ability to pay bills when they fall due. This gives you a more realistic idea of how your business is going and helps you to avoid problems.
Cash flow forecasting is one of the most important forecasting tools for business. It is useful if you’re trying to get finance – it shows lenders you can pay them back.
With some basic financial knowledge, you can make sure your budget is accurate and up to date.
If you need a helping hand don’t hesitate to contact us. We have cost effective solutions that will ensure you have your finger firmly on the pulse of your business.
If you are looking for advice or someone to guide you through the best options for your business, get in touch with our expert team on (07) 5536 3755 or contact us here.