The end of the financial year is coming fast and if you haven’t already, now is a good time to get your budget in place for next financial year.
Why Should I Set Up A Budget?
A budget is an estimate of income and expenses within a given amount of time. It contains goals, boundaries and limits of expenditure within your business.
Budgeting can allow you to create a spending plan, by mapping out what your business requires as well as what is important to making it successful. It makes your business accountable for its expenditure, can reduce costs and means you can prepare for a worst case scenario if it’s set up well.
The budget process makes you look closely at your business, it’s value and the industry it operates in, and is a good way to set targets and monitor progress.
Where Do I Start?
Budgets can vary in shape, size and level of detail depending on your requirements. The period in which a budget runs can also vary according to what you think is most appropriate. Generally they run on an annual, quarterly or monthly basis but it’s entirely up to what suits your situation.
A good place to set the start of a budget is at the beginning of a financial year, however it can begin within a time period relevant to when you have the most current information available to you.
The level of detail can range from having one category for income to having several if you have various income streams. You can have broad categories of expenses or you can break them down into specific items if this is easier for you to track.
What Should The Budget Include?
A budget can be prepared for your income and expenses as well as for your cash flow, which is often very useful for most businesses. As I mentioned earlier, setting a budget will force you to think about your business and the industry it operates in.
From a business perspective you should be thinking about how you can increase your income, maybe increase your income streams. Follow this with examining your expenses to determine whether you can cut costs or need to invest further because your business lacks support or investment in a particular area.
From an industry perspective you should consider any changes that have already affected, or may affect, your business. These may stem from changes in government policy, taxation law, employment law, technology and whatever other areas are relevant to your industry.
Targets or KPIs should also be included in your budget, however these targets need to be achievable. If you base business decisions on the results of your targets this could be negatively impacted if they are unrealistic.
What Do I Do With The Budget?
Once your budget is set, the work doesn’t end there.
At the end of each budget period, you need to analyse your budget against your actual performance on a timely basis. This will highlight where things are going well and where things need to improve.
From this analysis you should be able to determine if there are any changes that need to be implemented in your business, and what they are. You may even find you need to adjust your budget in response.
In this ever-changing and competitive world, setting a budget is an important business tool, and if followed up with regular analysis and actioning any adjustments it can be a great benefit to your business.
Find out more about your business performance and how to create the best budget for your situation. Get in touch with the team at BLG Business Advisers online or by calling (02) 4229 2211 to discuss how we can assist you.