Budgeting for your business

Failing to plan is planning to fail. Now more than ever it is important to set financial targets and goals for your business. Budgeting is a crucial business process that can lead to both short-term relief and long-term success. Budgeting serves as the foundation for maintaining financial control and achieving goals. This blog explores the benefits of budgeting, along with the processes that can help you create an effective budget.

The Benefits of Budgeting

1. Provides Clear Financial Vision Budgeting helps you gain a clear picture of your finances. By knowing exactly where your money is coming from and where it’s going, you can make informed decisions. It provides transparency into your overheads, margins and profitability and helps identify areas where you can cut back.

   
   

2. Promotes Better Financial Control Without a budget, it’s easy to lose track of your expenses, leading to overspending. Budgeting gives you control over your finances by assigning limits to different categories of spending, which helps you avoid unnecessary debt. It’s like having a financial roadmap that ensures you're not veering off course.

   
   

3. Helps You Achieve Financial Goals Just like in your personal life a business needs goals and targets to work towards. Are you after growth, do you want to get back to profitability. Or are you just looking to protect and maintain your current business. a budget sets out what you need to achieve in terms of sales, margin and targets to keep your overheads to. Without knowing what these are you will miss them.

   
   

4. Prepares You for the Unexpected Business is nothing if not unpredictable. Unexpected expenses, can derail your finances if you're not prepared. A good budget includes an provisioning for reserves , which acts as a financial cushion when these unforeseen events occur.

   
   

5. Reduces Financial Stress Financial anxiety can be overwhelming, especially when you're unsure how much you have to spend or save. A budget brings clarity, reduces financial uncertainty, and provides peace of mind. Knowing you’re in control of your money can greatly reduce stress and help you sleep easier at night.

   
   

6. Improves Your Credit Score If you're managing debt, sticking to a budget can help you pay down your balances on time. As you reduce outstanding balances and avoid missing payments, your credit score will improve, helping you secure better financial opportunities down the road.

   
   

The Process of Budgeting

Now that we understand the benefits of budgeting, let’s take a look at how to create and maintain an effective budget. The process is simpler than you might think:

1. Assess Your Income This is where it all starts you need to consider multiple factors. First of all what is your breakeven, revenue requirement (see our blog on this for more detail) This ensures you are making planning to make enough to cover your overheads and provide return. Next we need to consider capacity, if your a service business what is your maximum capacity for fee generation (e.g. people at x utilisation x hourly rate) Your capacity needs to be higher than your breakeven and you should set revenue targets that looks to maximise utilisation of this. You should always consider the driver of your revenue. e.g units to sell at x return on ad spend or referrals needed to your allied health business. Undertaking the above will not only provide a revenue target to achieve but a quantity of the activity you need to create to achieve said revenue.

   
   

2. Setting Overhead Budget Looking at last year is a good start for your overheads allowing for a small increase year on year. also consider things like rent increases etc. you should also think about any plans you have for the upcoming year. Are you moving premises, are you planning on opening a second branch. all these things need to be budgeted in the costs for the year so you can understand if you have working capital to fund this or if you need additional funding.

   
   

3. Monitor & Report While we don't often change a business budget we do need to report against it every month. Did we hit sales did we achieve desired margin? We need to look at this monthly and ask the questions. Why did we sell more than we budgets? Why did we fall short? Asking these questions helps us to understand what is working and what isn't allowing us to adapt and adjust as we go.

   
   

Budgeting is not just about restricting your spending—it’s about giving you control over your financial future. By creating and sticking to a budget, you gain clarity, reduce stress, and make it easier to reach your financial goals. Putting your first budget together can be daunting, our team is always ready to assist if you require just reach out.