Now we’re into the new financial year, setting your annual budgets is one of the best things to do, especially in an uncertain economic environment with persistent inflation. In this month’s edition of ‘in the loop’, I share my top tips for effective budgeting, regardless of your business type or pricing plans.

To make sure you’re kept in the loop, watch my short video [with transcript below].

 

 

transcript

In the current uncertain economic environment where inflation continues to be persistent, I recently suggested that setting a budget is a great way to prepare for the year ahead.

Whether your business is B2B or B2C, whether you’re selling goods or whether you’re selling services, or maybe you’re looking at what you need to increase your prices by, these are my top tips for setting a budget.

 

1. past data is just a guide for the future

Please make sure you’re starting your budget process or your forecasting process by looking at your vision for what you want the business to look like in 12 or even 3 years’ time.

 

2. identify fixed and variable expenses

Those that remain the same no matter what, things like rent, those that maybe step at certain volume points, or those that are variable typically go up as a percentage of sales, for example.

 

3. allow for sensitivities within your budget

What if sales are 10% down? What if they’re 20% down? Or what if they’re 10% up? What’s the financial impact on the bottom line?

 

4. focus on activity inputs, not financial outputs

Often in particular with sales, it could be tricky to set what your sales forecasts are going to be. But what you can set and what people tend to be able to relate to a bit more is how many do I need to sell? How long will it take for that to turn into cash? What average price am I going to sell? By breaking it down into the inputs for that financial figure, then it can make a lot more sense and you can sanity-check it a lot easier.

 

5. break your budgets down into segments

Maybe it’s segmented by product type, maybe it’s segmented by location, or by person. That enables you to focus on which divisions within your business potentially are more profitable than others.

 

6. the best budgets are 3-way budgets

And last but not least, the best budgets are always a 3-way budget. Budgeted profit, budgeted cash flow, budgeted balance sheets. It gives you the forecast of what all financial parts of your business look like.

 

 

we’re here to help

If you need help setting budgets within your business, our Brisbane and Sydney teams would love to help, feel free to give us a buzz at 1300 BDEPOT. If you have a burning question you’d like us to answer, I’d love you to send that through. You can send that to me at j.knight@businessdepot.com.au.

 

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