Cut your budget demons down to size!
No, we’re not talking about the amount of money in your budget: we’re talking about the work it takes to create the bloody thing!
Budgeting isn’t the most glamorous of tasks and we know it isn’t a favourite thing for most business owners to do, EVEN THOUGH it is one of your most important decision making tools. We’re not kidding – a frequently reviewed budget will:
- help you persuade investors to lend money
- help you decide when to hire staff or renew equipment
- help you spot financial problems early
because #cashflowmatters in a small business and budgeting gives you a handle on what’s happening each month.
So here are our tips for drawing up a simple, useful budget for your small business. You’ll want your financial records to hand for this – the more actual information you have the better. If you’re just starting up then do some research into likely costs, potential market & sales.
1/ Choose your method and budgeting period.
The most obvious ways to write up a budget are in a spreadsheet (and this can be REALLY simple) or in accounting software). You can choose your budget period (e.g. monthly, quarterly, annually) – we recommend a budget that you update monthly and shows your forecast for the whole year.
2/ Find out and write down your fixed costs for the business.
These are usually fairly easy as they don’t change month to month. Examples include:
- Rent & any leases, Business rates, Repayment of debts, Insurance, Salaries & pensions
3/ Estimate your variable expenses and include them in your budget.
These are more difficult than fixed costs and reviewing your financial or bookkeeping records will help you identify what causes changes in your variable costs. These include:
- Banking costs, Office supplies & professional equipment, Transportation, Marketing, Professional costs (legal advice, IT support, accountants, bookkeeping), Tax, Depreciation of assets, Miscellaneous expenses
Also remember to include your one off expenses: add in anything you can predict. For example purchase of large / specialised equipment, company vehicle(s) or new business premises.
TIP: if it isn’t easy to easy to check your financial records then you’ll probably benefit from help from a bookkeeper. It’s our job to keep this stuff carefully recorded so you can find it later. A bookkeeper will also be happy to help you create a budget with sensible estimates.
4/ Estimate your expected income from all possible sources (this is your revenue) to create a projection over the next 12 months.
How you do this depends on how your business works, for example, if you run a marketing agency and have clients on a retainer and a clear sales pipeline then take this information and use it as your revenue. If you run a shop or retail business your income is dependent on footfall and may be highly seasonal – take the figures for previous years and use to help you estimate monthly income.
You may also find it useful to separate out regular income (e.g. regular sales) and one off income (loans / funding).
5/ Put it all together into your budgeting spreadsheet and subtract your expenses from your income.
This will give you an estimate of your net income for the business.
Now you have your budget you need to enter your actual income & expenditure regularly (e.g. monthly) and then review to see how your net income is affected. If you want to have money to invest in hiring more staff or moving to bigger offices, your budget should give you an idea of when you can afford it. If your net income is negative or smaller than you expect, your budget will give you an idea why this is and where you can try to make savings.
If you don’t have the information to update your budget or don’t even have the time to create and review it then try talking to a bookkeeper as we can support you with budgeting. If you really want to understand potential business growth areas, we can support with other financial reporting and planning too.