I don’t have an exact figure but I would reasonably estimate that the only clients I have had that have used budgets, before I worked with them,
have been those who were large enough to have an in-house management accountant. We’re talking 2%. Why? Well, their accountants never really pressed the issue and spreadsheets weren’t their thing and, and, and…………..
What is a financial budget?
It’s your best estimate for how the current/next financial year will work out financially, in terms of your profit and loss report. It enables you to get an idea of how things might pan out if your sales, direct costs and operating expenses increase or decrease over the year. If you have a full years trading behind you, that’s your starting point.
Sounds complicated Andy – give me 10 good reasons why I should bother!
OK, starting from the premise that we’re all busy all of the time, here are 10 good reasons why you need to bother.
To budget is to tell your money where it’s going and not keep wondering where it went.
- It takes half a day [if you already have last years profit and loss] and less time of you have nothing. That’s about .2% of your available time in a five day week after holidays.
- You don’t have to get it right first time – it’s a forecast! Review it every 3 months and change if necessary.
- Managing your business by looking at the bank balance is nearly as crazy as doing the same thing every day and expecting a different result. Use a budget.
- You don’t have to share the numbers with your team – stick to percentages. ‘Hey team, we did 120% of budget this month – awesome work’.
- Get more value from your accountant – discuss the actuals versus budget.
- It’s the basis of being able to forecast your cashflow and your financial position [balance sheet].
- It enables you to have a meaningful marketing plan and, you guessed it, budget! Why? Because you can see a direct correlation between marketing spend and sales, giving you an acquisition cost per £ potential sales.
- You can project the likely impact of changing your prices/direct costs/ OPEX. You might find for example that reducing your range and increasing margin means less turnover but more profit.
- Would you set sail without a chart [business plan] or a compass [budget]??
- You can’t have a meaningful business plan without one.
You’re not alone in thinking that putting together a budget is not for you and filing it in the ‘too hard basket’. But seriously, .2% of your available time? The potential to create more profit? Being able to predict negative cashflow?
OK, I’m sold, where do I start?
The good news is, if you’re using cloud accounting software – XERO, SAGE, Kashflow, FreeAgent, Wave etc. then you are halfway there. If you’ve some trading history, you can use these numbers as your starting point.
If you don’t and you’re still using a spreadsheet/showbox/nothing or a combination of these, you can still make a start by printing off our free template.
If you still need help, I’d suggest you speak with your accountant or contact me and we can include this as part of the 1 hour assessment.