Budget: Simple Tips
Published By: Elizabeth Cromwell. Published on June 22, 2010
All businesses need to budget, but it is particularly true of small businesses because margins are often tighter and there are usually less funds available to juggle with.Managing a small business budget is key to any success you’ll achieve as it is the tool you will use to apportion all of the firm’s resources so here are some budget tips.
Not spending the appropriate amount of time on developing a budget can end up being the cause of everything from cash flow difficulties to complete business failure.
So where do you start?
Keep it Simple.
Although it is important to include all relevant information, don’t over complicate things; all a budget really is
is a projection of what you are likely to earn and to spend in a fixed period of time. It needs careful thought
certainly, but do not try to re-invent the wheel.
Keep it Real.
Be realistic about estimating your turnover, likely profit and expenses. Don’t overestimate your sales or
underestimate your costs, it is important to be honest with yourself about what’s needed. Inflating the amount
of money your business will make may be good for the ego, but you will be budgeting with fairy dust.
Consult and Review.
Before you start, review last years figures, and where possible collect some historical data, although only a
guide, previous years’ data will help your future projections. Also include others in your process, any staff or
partners who have a relevant take on a related area should be asked for estimates, comparing them with your
own will give a much clearer picture and also help keep any potential ‘wishful thinking’ in check .
Include all necessary information, however long it takes to compile, remember to include projected sales and
direct costs of things like materials as well as fixed costs or regular overheads such as mortgage and business
rates, amenities and marketing. Many types of accounting software include budget planners and this can be a
useful tool for ensuring that nothing is missed out.
Use historical data and sales forecasts as a guide only, and remember to factor in possible changes in the market as well as all variable costs. Remember that a decrease in sales will mean less revenue coming in but that your variable costs will at the same time go down and visa-versa.
Be primed for changes to your business and to the market and be prepared to update your budget accordingly, try not to think of it as set in stone on completion, but as a living breathing thing that will develop with the business.Your business budget will be vital for spotting things like potential cash flow problems and tackling them before they happen; having a heads-up on financial issues means that you can adjust your budget to cope or arrange temporary credit to bridge the short fall, not knowing in advance will leave you and your business extremely vulnerable.
A good, well-considered business budget will allow you to plan not only for the day-to-day running of your business, but also for its long-term future and success.
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