Creating a Business Budget is Just About as Important as the Business Itself!

Think about it – when drawing out a plan of action for your business, you can minimize any unexpected cash flow issues, control spending, inform decisions in other departments, assist with financing applications and reduce overall risk. Here are 12 steps you can take right now to create a business budget.

1. Research Costs – Why? No one wants to pay more than they really have to.

• Oversite costs to avoid underestimating expenditures.
• Marketing costs are notoriously easy to underestimate.
• For new businesses, include start-up costs.
• Variable costs generally correlate with sales.

Fixed costs to include:

• Rent
• Utilities
• Phone/Internet
• Accountancy
• Legal Fees
• Technology
• Advertising & Marketing
• Salaries

Variable costs to include:

• Costs of goods sold
• Labor costs

 

2. Project Revenues –
   • Forecast revenue
   • Use conservative revenue estimates
   • Use previous years’ figures as a starting point

 

3. Figure Out Gross Profit Margins –
   • List all costs of goods sold
   • Subtract costs from overall sales revenue
   • Consider entire business vs individual departments

 

4. Create a 12-Month Cashflow Projection
   • Allow for payment terms – e.g. 30 days
   • Allow for payment method – credit agreements incur expenses
   • Understand your opening balance & how this affects cashflow

 

5. Adjust For Unreliable Payers
   • Allow for late payments in revenue column
   • Allow for bad debt
   • Create business policies to deal with late payment

 

6. Adjust For Seasonality
   • Research seasonal demand for your industry thoroughly
   • Create savings at peak periods to cover quiet months
   • Allow for temporary staff is required to meet demand
   • Allow for increased production costs at peak time

 

7. Adjust For Economic & Industry Trends
   • Consider general industry growth
   • Consider wider economic growth
   • Consult forecasts from reliable industry experts

 

8. Decide How To Spend
   • Fixed rate energy plans help forecasting
   • Decide whether to buy or lease technology, vehicles, etc.
   • Decide whether to buy new or used products
   • Decide whether to buy on finance or outright

 

9. Discuss Expenditure With Department Heads
   • Project one-off expenses
   • Agree necessary spending
   • Create targets to incentivize performance

 

10. Prioritize Investment
    • Decide where to assign profits over forecasted levels
    • Consult key management and department heads
    • Discount non-essential expenses
    • Prioritize projects over individual costs

 

11. Create A Contingency Plan
    • Conduct a risk analysis
    • Plan for financial underperformance and overperformance (which can bring it’s own set of challenges)
    • Consider impact of each option on business performance
    • Minimize loss in business-critical areas

 

12. Plan Regular Budget Reviews
    • Quarterly budget reviews allow flexibility
    • Be reactive to over/underperformance
    • Adjust figures accordingly
    • Speak to your accountant or business consultant before making big decisions

 

Along the way of creating this budget, feel free to reach out to me with any questions. Each business is individual and unique, as should their plan. Contact us here for more information: CONTACT US HERE