Why bother with budgeting?

Here’s an important question for you, whether you’ve just started your financial year or you’re just coming to the end of it. Have you given any thought to your budget for next year? We work with businesses every day, so we understand the objections you may have to this question. After all, why bother budgeting in an economic climate where little has changed or in an industry where there is so much uncertainty? The fact is that a budget can only be, in the most positive way, a best guess. Yet the process of reviewing your business finances each year and thinking about costs can ensure that you stay up to date with the overall financial well being of your business.

How to avoid risking a cash flow crisis
The other thing to remember is that without a budget as a benchmark for your performance, it’s difficult to know if your business is generating a return that justifies your efforts. Plus, it can be tricky to assess opportunities that might come up during the year. So what could this actually mean? The worst case scenario is that you end up making spending choices by only referring to your bank balance – creating decisions which then later lead to a cash flow crisis.

But where do you actually start when setting a budget? A really great first point for a small business budget is last year’s performance. Then you can move on to looking at the issues which you know will be different.

Zero-based budgeting
In a rapidly changing environment or a new business, you may need to start from scratch each year with what is called zero-based budgeting. In this scenario, you will start with a sales forecast, supported by a marketing plan and add in the costs you need to support those sales. Remember, it is human nature to overestimate sales and underestimate costs, so it’s always better to build in some contingency.

Now that your budget is in place, you should regularly monitor your results against it. This will allow you to decide if you need to make changes or commit more spending over the year.

Like to find out more?
Would you like to know more or take part in a Budget Working Session where we can spend time helping you to set and plan a budget for the year ahead? If so, please contact us now on 0115 871 5842 or email us at: info@belsoft.co.uk