A well-prepared budget can help you control spending, maximise your resources and head off cashflow problems before they have the potential to harm your business.

Your budget doesn’t need to be complicated. All you need as a starting point is to work out what you’re likely to spend and earn over the coming financial year.

To help, we’ve prepared our 5 best tips for putting together a well thought out budget:

 

1. involve your team

Your first step when working out a budget is to collect information on past sales and costs. These will be the foundation for your forecasts, so the information needs to be as full and accurate as possible.

Speak to the appropriate team members with the information you need – especially if they’ll be responsible for managing the budget [in part or in whole] in the future. Involving them at this early stage will also encourage them to commit to the budget.

It’s also well worth asking for their opinions on where costs could be reduced or better managed, and how to improve sales – they may have insights ‘from the ground’.

 

2. consider changes to the landscape

When you have your historical information, consider your future plans – how do you expect sales patterns to change in the medium term? Think about:

  • your competitive environment – who’s competing with you, and how their offering compares to yours
  • possible changes to your industry – for example, new tools or innovative technology
  • your resources – both for creating and supplying your products or services, and for selling them

 

3. forecasting the future

Using this information, prepare a sales forecast. Remember to consider any seasonal or other variations [such as expected income from a large contract, or different payment terms for different clients].

To work out your spending, first think about your fixed costs – otherwise known as your overheads, this covers costs such as your premises, staff salaries, utilities, and insurance.

Next, consider your variable costs – those costs which vary depending on your level of production or sales. This could cover materials, transport, and other unpredictable expenses such as staff overtime. It could also include one-off costs such as purchases of new equipment.

Identify any non-operational costs, such as taxes, depreciation, and interest on loans.

Finally, bring together the figures, using a spreadsheet or accounting software which will also allow you to do budgets by department or division.

 

4. be realistic – not optimistic

It’s vital to make sure your budget is as realistic as possible. An over-optimistic sales forecast – while undoubtedly a boost to morale[!]  will only encourage overconfidence and could cause a real problem with cashflow.

If there are any areas where you can’t predict with certainty – for example, a contract you may or may not win – it might be helpful to prepare a different budget for each scenario.

Regularly update your budget as circumstances change to ensure you’re on top of the situation and allocating resources effectively.

The more often you review and update your budget the more likely you will be able to foresee cashflow problems.

 

5. budgeting for growth

A realistic, thoughtful, and accurate budget can give you valuable insights into your wider business strategy. For example, parts of the business that are performing badly, or products with untapped sales potential.

Identifying which areas of your business are underperforming can help you ‘strip away the dead wood’ freeing up resources for more profitable projects.

 

we’re here to help!

If you’re not sure where to start or would like an outside opinion on your business’s budget, the businessDEPOT team has advisory experts that can lend you a hand, no matter your industry – just give us a buzz on 1300BDEPOT or get in touch at oneplace@businessdepot.com.au!