October 10, 2023
As a new small business owner, there are so many aspects of your business that you need to worry about, such as the well-being of your employees, your relationship with your suppliers and your customer experience. However, there is nothing quite as concerning as managing your business budget, especially if you have little experience in the complicated world of finance.
Whether you are already seeing the effects of not managing your business budget or you are worried it will come back to haunt you in the not-too-distant future, the following guide is just what you need to get on the right track - and stay on it!
A business budget is a type of financial plan that sets the limit for costs and investments over a set time, typically a year. In most cases, the chief financial officer (CFO) will work alongside other directors and heads of departments to review proposed budgets for the year ahead.
As mentioned above, most business budgets are carried out annually, although adjustments can be made throughout the year if needed. Typically, a business budget is set around the time of year-end close. In the United States, this tends to be in October, and in the United Kingdom, it is in April.
It doesn’t matter if you are an established enterprise or a brand-new business; a business budget is essential for all. While small businesses may not have to budget for different departments, they still need to set an overall budget for the year ahead.
Some of the most notable reasons why a budget business is important include:
If you have never created a business budget before or you have but it was not detailed enough, the below basics are just what you need:
For new businesses, it can be a good idea to check the industry averages before you get started on your budget. This allows you to see what other similar companies spend over the course of an average year and is typically shown as a percentage of revenue.
Industry averages can help you to allocate funds and make every penny of your budget count.
Next, you need to set your financial targets for the year ahead. Do you hope to perform the same as the previous year, or do you predict sales to be higher? If it’s the former, you could set the same budget as the last year. However, if it is the latter, you will need to adjust your budget accordingly.
Make sure you are realistic with your predictions for the year ahead, as you don’t want to say, “We aim to grow profits by twenty per cent,” if this is highly unlikely to happen.
You now need to determine the exact costs of running your business in the year ahead so that you can ensure there is enough money in the budget to cover this. Make sure you consider the possibility of employee raises, budget increases and any new cost centres.
With this step, it is better to be over cautious than it is to underestimate.
If you have different departments within your business, you need to communicate with the heads of each one to identify their predicted costs and targets for the year. Basically, you need to sit down with anyone who has access to their own budget.
If someone wants to increase their budget, make sure they have a sound reason for doing so, such as a need for an increased marketing budget due to more competition.
Now is the time to draft your final budget, and this should include all the forecast spending, business costs and any planned activities for the year ahead. Your business budget should be clear and easy to understand so that each department can see how much they have to spend and can start deploying their tactics.
Once your business budget is complete, this doesn’t mean you can now sit back and relax. As a business owner, you need to be actively controlling all money coming in and out and safeguarding the budget so that you can achieve your targets. A great option would be Implementing spend management software as it provides real-time insights and control over expenses, ensuring financial goals are met efficiently.
Here are some great tips for managing your business budget:
Although most businesses set an annual budget, it is still a good idea to review it once a month to see if any adjustments or changes are needed. For example, if any new information is brought to light or new employees are hired.
If you do not have an in-house team of financial advisors and you are struggling to manage your business budget on your own, you may want to consider hiring an outsourced financial controller such as ORBA Cloud CFO Services.
By outsourcing this task, you can get help with financial budgeting, cash flow, reporting and so much more.
Many businesses struggle to manage employee expenses and this can wreak havoc with their business budgets. To keep on top of what your employees are spending on entertainment, transport, food and accommodation, you need to set out clear policies for each category.
By setting an expense policy, you can better maintain control of their spending and ensure your employees feel confident spending company money.
If you go over your business budget, the most important thing to do is to remain calm and not panic. Depending on the size of the problem, you will need to look into different areas where you can make cutbacks, such as discretionary staff spending.
If the problem is bigger than anticipated, you might have to make bigger cuts, such as to your advertising and marketing budget.
