The only way to meet your business goals is to plan to meet them. Budgeting is a crucial stage in the planning process and it’s easier than you think. Here are my 7 easy steps to successful budgeting:
1. Plan when to complete the budgeting process
When to set your budget depends on your financial year; 3 months ahead of the start of the next financial year is the perfect time. So if your financial year runs January to December, then budgeting should happen in October.
2. Gather your information
You’ll need the details on expenditure and historical sales in order to prepare your budget so ensure you have this ready for budgeting 3 months ahead of your next tax year.
3. What to spend?
Create two lists of expenditure for the year ahead. Firstly, what MUST be spent? This might be salaries, rent, materials etc. Then, what would you like to spend? This will include marketing activity such as trade shows, a new website or advertising as well as capital expenditure such as new or upgraded equipment. Don’t be afraid to include everything you want, including a salary increase for you!
4. What income is needed?
Based on your historical sales trends and any retained work for the year ahead calculate whether this income will cover your planned expenditure. If it doesn’t, plan the growth in sales needed to meet the costs.
5. Layout your budget
Create a monthly plan of income and expenditure so you can monitor it.
6. Compare actuals against plan
On a monthly basis, review whether your sales and expenditure are meeting your plan. If you have more than you need, great! If not, then plan to reduce spend accordingly.
A bookkeeper can help with this process and is much more proactive than relying on your accountant who will provide a historical view. Budgeting and monthly reviews via your bookkeeper is more easy to work with and gives the tools to ensure your plans are met.
Of course budgeting is an ongoing task, so you can diarise each year when it will be completed. With each passing month and year you’ll build a bank of data with which to improve accuracy. However as always, if you need any help with this process then give me a call for a Free Business Review.