November 24, 2015
As a small business owner, setting up your budget enables you to forecast your overall outgoings and profit margins. You should use it to plan ahead and judge how your business is going to perform. This should be an ongoing process of reviewing and updating your budgets, then comparing the results with your original forecast plan.
A well run business should keep on top of its budget to try and minimize potential losses. Some forecast for a whole year, while some use real time data to project results. There is also scope for creating mini budgets for different departments, within the main budget.
Where should you begin when budgeting for your small business?
The simplest solution to forecasting business performance is by creating a master budget based on your company's performance of late. This financial document will give you a snapshot of how you think your business will do over the coming year. It's also wise to discuss your projections with your colleagues or management team, and talk about any changes in the marketplace that might result in a change either in your projection, or between this year and last year's performance.
Your next step is to create some real time projections. Make space in your master budget for a section that projects your results using data as it occurs. A section compiled using the figures from your first three months of sale might give a more accurate result than static figures.
Make a division in the 'total' column of your master budget, between the number of months that have passed, in order to end up at an average monthly income and expenses. Projecting where you will end the year, is achieved by multiplying those figures by twelve; you should end up with a projection of where your company would be at the end of year, providing the figures remain at that level.
Projecting your profits more accurately is easier if you're aware of your overheads. Knowing how much it costs you to produce each unit, make each unit and provide an overall service, is equally as important as knowing your overheads. Your master budget should identify all of your overheads, such as wages, rent and utility bills which you can calculate to give your company's overhead costs; dividing this number by the total amount of units you produce, will give you your overhead costs per unit.
Creating a number of different scenarios in which your budget shows a lower and higher amount of sales will enable you to see where you could make adjustments should those projections prove accurate.
But if you're struggling to make headway when budgeting for your small business, why not hire an accountant to complete your forecasting for you? While budgeting is an important part of your routine as a business owner, if it begins to encroach on time that could be spent doing something more constructive, your business may actually suffer as a result of it. This is when it would make sound business sense to employ a professional.
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