Rather than just ‘getting by’ day-to-day, we all want to be able to plan. We would like to have advance warning of what’s around the corner and to make decisions for the future with confidence. This is especially the case if you’re responsible for a business — which is why a budget is such a valuable tool. To make it super easy, here are some useful tools and techniques to monitor and maintain your budget.
Why do you need a business budget?
Your business budget enables you to estimate your income and outgoings for a set period of time. It gives you a snapshot of how your business is progressing, helping you to see where savings could be made, and where there’s scope for further investment for growth.
Setting up and maintaining a budget can be made easy with the right tools and techniques. Here, we’ll show you some of these methods, and illustrate how your budget can be put to work to keep your up-and-coming business on track.
Putting together a budget for a small business: the essentials
A budget shouldn’t be an overly complicated document. After all, it’s a tool for you to use in real life, so if it’s difficult to interpret, it’s not doing its job properly. A typical small business budget will be concise enough to be contained on a single page.
Set out a time frame
Your budget will cover a defined period. Many small companies create annual budgets, but you can set it out to cover as many days, months — or even years — as you feel comfortable with. When deciding what timeframe to use, be aware that a big part of budgeting involves forecasting — i.e. predicting future income and outgoings.
Long-term or short-term?
For a brand new startup, it can be more of a challenge to make useful long-term predictions until you’ve tested the market. As such, if you’ve only just started trading, you can manage your plan more accurately by setting a short-term budget to begin with — perhaps covering a three-month period or less. As time goes by, and income and expense trends become easier to spot, you could extend this to six-monthly, and then annual, budgets.
Income and expenses
Your budget is divided into two sections: income and expenses. Under the income section, you include sales revenue and all other sources of income (such as interest earned on money in your business account). Under expenses, you list each of the items of expenditure your business is likely to incur in the budget period.
These items may include:
- Staffing costs
- Repayment of loans
- IT costs
In a typical simple budget document, each item is accompanied by three columns. These are:
- The actual amount incurred so far during the period
- The estimated amount for the period
- The difference between them.
At the bottom of the page, there is a total for net income. This represents the difference between income and expenses.
Maintaining your budget and putting it to work
For your budget to work for you, it’s important that it continues to reflect what is actually happening in your business. Get into the habit of revisiting it regularly (i.e. weekly or monthly), updating the amounts for actual income and expenses, and revising your estimated amounts where necessary. Keeping it accurate enables you to make better-informed decisions, such as whether you can afford a big purchase, or whether to take on new staff.
From business to personal
An accurate business budget can help you better manage your personal finances, too. After all, your business exists to generate an income. So rather than withdrawing money from it in an ad-hoc way, your budget should help you to determine a reasonable, set amount of cash to withdraw each week or month — at a level that doesn’t risk leaving the business with a cash flow problem.
Tools for making budget maintenance easier
Use a spreadsheet
In theory, you could set out your budget in a basic Word document, but this means having to calculate and then manually alter the relevant amounts each time you update a figure. A spreadsheet offers a quicker, easier way forward, as you can format it to do the calculations automatically.
There is good news if you’re not familiar with creating spreadsheets, too. A Google search for business budget templates will bring up lots of free, ready-made documents to use. This one from Vertex42 is a good example.
Invest in accounting software
As your business grows and the volume of expenses and sales revenue increases, specialist accounting software can help you keep track of everything. This type of software tends to have a range of reporting features, such as the ability to automatically generate a budget report using the data from your profit and loss account.
Looking into the future
Some packages can go beyond filling in the fields for actual amounts to give you estimates as well. In other words, they can do much of the forecasting for you — but be wary of over-reliance on computerised forecasting. Predicting future sales is a good example. The software will come up with an estimate for future sales based on set criteria — notably, past performance. But if your knowledge of your market leads you to think that the figure suggested is too high or too low, be sure to change it. After all, you are aiming for accuracy, and you know your market better than the software does.
To find out more about forecasting, budgets, and all other startup planning essentials, head over to our help centre.