When growing a business it’s essential to plan and manage its financial performance. And by having a structured budget in place, you can effectively steer your business in the right direction. Most successful businesses invest time into creating budgets, reviewing plans, and tightly monitoring finances so as to meet objectives.
While similar to cash flow statements, business budges do differ slightly. As Inc. explains, it should include enough detailed information to serve as a “roadmap for the company,” allowing you to make confident and supported financial decisions. Budgeting is ultimately the most effective way to stay in control of expenditures and cash flow, and is thus a vital part of your operations.
With this in mind, we’ve outlined some helpful tips on budget management.
1. Planning & Preparation
First and foremost, preparation is key. In order to have a workable budget, a basic outline of what goals you want to achieve for the business should be laid out.
Prior to any budget planning, it may be useful to refer to our “New Year, “New Me” post, which included advice to document everything, all the time. Having a detailed outline of where you spend on behalf the business –– from your marketing operation to the pens on your desk –– will help you to form a more informed picture of your finances. Create a spreadsheet with this information, and it will become the foundation for the whole budge.
2. Accurate Representation
Forming your budget around a true financial representation is important. This starts with recognising that costs and revenue aren’t always constant. According, it is recommended to make your calculations based on your lowest month’s income, so that the budget remains wholly realistic. This is a tip drawn from an AskMoney article aimed primarily at personal budgeting, but it applies to business planning as well. Calculating based on superior performance can give you an inaccurately skewed representation of finances, and will ultimately force you to spend time making adjustments. Not to mention it could leave you in a situation in which you’re overspending.
Opting for the low end makes for a good starting point, and helps you to establish a more strategic budget.
3. Collaboration
If your business has several departments and/or extensive managerial staff, it’s essential that you’re all working from the same page. Each department should have its own budget, and the format of those budgets should be standardised across the board. Encourage communication from related teams where departments overlap to ensure that they’re working in conjunction with one another. Whilst each division will be independently managing its own budget (ideally), creating a centralised area for departmental budgets to be accessed is useful for maintaining a cohesive structure.
4. Monitoring & Evaluation
As we alluded to before, recording every detail of income and expenditure is essential to highlighting over- or under-spending. Regularly monitoring your budget also allows you to identify where adjustments are needed. Your budget should be a working document; as the business grows, it will require consistent evaluation. Many factors, such as cash flow and variable costs, will regularly affect figures, and adjustments will need to be made accordingly. Furthermore, as Forbes expanded on in a recent piece, the pandemic and the difficulties it’s inflicted on businesses may also cause you to rethink certain matters related to budget (such as how to adjust if resources have become more costly).
Whatever changes or disruptions you may face, routinely assessing the budget will call attention to discrepancies and enable important adjustments.
In the end, each business faces its own challenges when it comes to managing the budget. With these tips in mind, a thorough approach, and a willingness to adjust however, you should have your business on the right track.