You’re not new to asking the question, ‘how to budget for a business?’, but are you sure you’re getting the most out of the one you’ve created for your small business? Do you have a plan if you’re not? If you want to improve your business budget planning skills, read on.
Why Should You Have a Business Budget?
A well-crafted financial plan is vital for the success of a small business. It serves as a financial road map to what you wish to achieve in the short and long term.
A business budget is not just a document; it’s a means for making informed decisions. By regularly reviewing financial data, businesses can maintain financial health and stay poised for growth.
Kamogelo Lekalakala, credit training specialist at Lula, recommends that small businesses review their budgets monthly to help their business stay proactive rather than reactive. “A budget allows owners to spot trends early, manage costs effectively, and adjust for unexpected changes, whether it is a shift in revenue, supply chain costs, or seasonal customer behaviour. Monthly reviews also help ensure the business remains on track to meet financial goals and obligations, while making room for timely adjustments,” she says.
Where Does the Value Lie in Budgeting?
There is good value in reviewing your business budget and adjusting it to the flow of your business.
“The most valuable result of having a budget is the confidence that comes from knowing the business’s finances are aligned with your business goals,” says Lekalakala. “A clear budget gives control over how funds are allocated, helping the owner stay focused, make informed decisions and adapt as needed.”
How to Review and Refresh Your Budget
Budgets require regular monitoring and planning to be effective. A monthly review of your financial plan will help identify areas of overspending, underallocating or deviating from goals. Once armed with this information, you can refresh your planning accordingly.
The value of comparison
Comparing the actual income and expenses with the budgeted ones will allow you to make the necessary adjustments, cut costs where possible and realign your business strategy.
Business budget software
One crucial aspect to consider is how to use technologies for cash flow management. Using business budget software can help track spending and make adjustments easier.
Working with tools like QuickBooks, Xero and Vault22 can provide real-time insights into your business’s financial wellbeing.
Tips to Help You Refresh Your Business Budget
- Review original assumptions: Examine the assumptions made when the budget was first created. Are they still valid? Have market trends changed, or have your financial goals evolved?
- Analyse financial performance: By scrutinising actual financial performance over recent months, you can identify both positive and negative trends in income and expenses, which can help with future financial planning.
- Re-evaluate forecasts: Based on the results gleaned from your financial analyses, taking into consideration market conditions, any change in strategies, potential opportunities and possible risks, you can now review your revenue projections.
- Inspect expenses: Review all expense categories to see if any unnecessary expenses can be eliminated, as well as if there are any new ones to account for.
- Identify inefficiencies: There may be areas where you operate inefficiently. Can processes be streamlined to reduce costs? Check out these practical cost-saving tips for your business.
- Re-evaluate fixed costs: While these typically remain stable, it is important to review them periodically, especially in the case of updated lease agreements, insurance premium increases and new loan repayments.
- Re-assess variable costs: Analyse variable costs in relation to updated forecasts. Will the costs of goods or services change? Is it necessary to adjust marketing spend to meet new targets?
- Review your emergency fund: Is your emergency fund still adequate given all variables and risks? Consider increasing it if necessary.
- Include new strategies and financial goals: If new strategies or financial goals have been set in your planning, make sure the refreshed budget allocates adequate resources to support them.
- Set clear financial targets: Based on the refreshed budget, set clear and measurable financial targets for the future to track progress and keep teams accountable.
- Set a date for the next review: Regular reviews are critical to maintain financial accuracy and stability. Set a date for the next review to check actual performance against the budget and make adjustments as necessary.
Actioning these tips can help you refresh your business budget, create a more accurate and effective road map and put you in control of your finances and cash flow. Why not try our useful business budget template for your planning? You’ll find it here.
Don’t Forget These When Creating a Business Budget
When working on their business budget planning, business owners typically account for the most obvious expenses such as payroll and production costs. However, some important expenses may be overlooked, which can significantly impact the business’s health.
Have you accounted for all these expenses?
- Potential opportunities: It is essential to plan for unexpected opportunities. With a reserve fund in place you can capitalise on opportunities, enabling growth.
- Bonuses and team building: Be sure to allocate resources for bonuses and team-building initiatives early in the year.
- Industry research and professional development: To stay competitive in often cut-throat markets, you need to be up to date with industry research and evolving market trends. This means upskilling teams or employing an additional resource to conduct this research.
- Business insurance: This is an essential expense that businesses often overlook. Ensure you are adequately insured for general liability, professional liability and property insurance to prevent financial losses in the event of unforeseen circumstances. Make sure this is accounted for in your monthly business budget. Missed payments can jeopardise your cover.
- Unexpected costs: Have a contingency fund in place for when unexpected expenses pop up. This could be anything from unscheduled maintenance to having to pay out leave.
- Software and equipment upgrades: While business owners typically make provision for an initial purchase of equipment and software, they often overlook the need for upgrades and updates.
- Taxes: You don’t want to find this out the hard way. Open a separate bank account to set aside money for taxes, so you aren’t caught off guard when tax season rolls around. Another tip is to always hire a professional to ensure you are making the most of your tax situation.
Handy Habits to Cultivate When Doing Your Business Budget Planning
Small businesses can cultivate positive habits to help ease cash flow and avoid unexpected expenses.
Habits that will help you get the most from your business budget:
- Proactive invoicing and follow-up: Implement a consistent and timely invoicing system immediately after providing goods or services.
- Explore diverse revenue streams: Explore opportunities to diversify income sources.
- Optimise pricing strategies: Regularly review pricing to ensure it aligns with the value proposition.
- Record expenses in detail: Record every business expense, no matter how big or small.
- Review and negotiate supplier contracts: Do periodic reviews of supplier contracts to ensure the best possible terms and pricing.
- Plan for recurring expenses: Keep a clear schedule of all recurring expenses to make sure sufficient funds are allocated in advance.
- Daily or weekly cash flow management: Review bank balances to track incoming and outgoing payments on a daily or weekly basis.
- Plan for, build and maintain a cash reserve: Keep a healthy cash reserve in case of unexpected expenses or short-term cash flow slumps. If you need a quick cash injection you can always access one within as little as 24 hours.
Plan More Strategically with a Business Budget
When looking to maximise efficiencies, reach goals and invest in growth, you need to plan adequately.
Here’s a quick recap of the steps to take when creating a business budget:
- Examine revenue and add up all income sources
- Subtract fixed costs like salaries, rent, taxes and insurance
- Subtract variable expenses like raw materials and utility costs
- Set aside a cash reserve for unexpected expenses
- Calculate your profit
- Cultivate good habits to stay on track
- Review your budget monthly, and plan accordingly
Use Your Business Budget to Set Your Business Up to Win
Now that you know how to create a business budget and how to review it, remember that Lula offers business banking solutions for small businesses, which can help you plan and manage cash flow more effectively and stick to your business budget like a pro. Save time, with additional features like Payment Controls and Multicompany, which give account holders more control and flexibility.
Open a Lula Business Account today and unlock the latest features for more control over your finances to start budgeting like a pro.
