Have you started your budgeting process yet for the 21/22 financial year? Every business should have a financial plan for each year and now is the perfect time to start putting this in place. Here are five tips to putting together a successful budget.
- Work out where you are going to end up in March 2021. Now you have 7 months of actual financial figures from your business, you should have a reasonable feel for how the next 5 months are going to look. Forecast these last 5 months into your figures so you have a complete year of sales and costs. Of course, nobody has an accurate crystal ball, but it will be close enough to give you a base result to build on. Was our time through Covid tough for your business or was yours one of those that thrived through new innovation or tactics? Bear this in mind when you are looking to next year.
- Work out what is going to stay constant and what is going to change next financial year. You should be able to anticipate certain parts of your business, both sales and cost, that on the whole should stay similar to the current year. This may include the market, large customers, ongoing repeat income, staff and overheads. It is also important to identify the changes, such as new sales initiatives, additional staff or wages, increase in product costs or increase in overheads such as rent, vehicles or salaries. All of these changes need to be costed and put into the appropriate budget line.
- Write down all your assumptions that you have based your figures on. Budgets are a living document and should be reviewed at least quarterly for accuracy. If you cannot remember the assumptions you made when you developed the budget, then you have nothing to test your numbers against when reviewing or revising your budget down the track. Also, if you are using the forecast for further bank lending, the bank is going to want a clear understanding of your assumptions made.
- Get your key staff involved in the early process. Your key staff are often instrumental to whether you meet your budget or not. If they do not have input into some of the key initiatives or drivers for sales growth, resource requirements or cost savings then they are often blind to the changes required.
- Write down the plan for the changes required to meet your budget assumptions. Numbers are only numbers and will not be reality without action. Any new initiatives for sales growth, gross profit improvement or cost reduction needs someone to action it and a timeline showing when it is going to be done. Write down all the initiatives identified, assign each one to someone responsible (often yourself) and when it needs to be in place to affect your budget. Written down as a plan, it is more likely to get done and more likely you will achieve your budget.
Budgeting should be a fun exercise, not a laborious one. This is a time to reflect on your current business and think about what could be. Try and put the bones together now, reflect over the break, revisit in January and then have a completed budget in place by end of February. Give it a go and if you would like some assistance contact one of our team.