Effective Business Budgeting: Tips and Advice

Effective budgeting goes hand in hand with running a successful business. As any good business owner will know, when you are looking at your budgets you are creating a plan for the future. Budgeting can help you to make better financial decisions, it helps you to control your expenses and should support your growth plans.

In this guide, we look some top tips and advice to navigate the intricacies of budgeting and help you develop your own approach to this essential task…

Understand your goals

Whether you are a start-up or established business, budgeting should begin with understanding your goals. Make sure they align with your budget and then define your short-term and long-term objectives. Consider how you are going to grow your business and set aside budget for your strategic growth plans, which may include marketing or research and development, for example.

Do you need to increase your revenue, expand your operations, or make some key investments? If you identify what you want to achieve from the start, it will make it much easier to define your priorities and then allocate money or resources as a result.

Look at your previous performance

Budgeting can be much easier if you have past financial records to work with – if you know that your business has peaks and troughs, seasonal patterns, fluctuations in revenue or months where expenses are higher, then this will help you to estimate future revenue and expenses and make more informed decisions.

It is important to be realistic though – there is no point kidding yourself or overestimating your revenue if you know deep down that it’s not achievable. Look at the demand for your business, your pricing, your competition, and the economic conditions you operate in.

While it is good practice to look at your previous performance, make sure you create a new budget for each year – don’t base next year’s budget entirely on the previous year’s figures. It is unlikely they will be like-for-like, as costs are likely to fluctuate and can change each financial year.

Be organised and consistent

Organisation is key – make sure you have one bank account dedicated for sole business use and that all transactions go through this account. Having everything in one place keeps you organised and ensures that you don’t miss any income or expenses. If you are consistent in your approach to record keeping it is also much easier for your adviser to correct mistakes and give you advice going forward.

Establish a routine and get into the habit of entering your transactions regularly – by doing this daily or weekly, it can help you stay on top of your budget and avoid falling behind. Don’t forget to categorise your transactions as well, such as income, expenses, assets, and liabilities. These will all need to be considered in your budget.

Keep all your receipts, invoices, and other financial documents together – whether that’s a filing cabinet, folder, or digital storage system, again when you’re budgeting, it is much easier if everything is in one place. Using accounting software can also help you keep track of your transactions, automate tasks, and generate reports. There is a whole host of options available online.

Examine your costs in detail

By outlining your fixed and variable costs in detail and distinguishing between the two, this will help identify where you could potentially reduce your expenses and manage your budget more effectively. Fixed costs remain constant and include things such as rent, salaries, utilities, and insurances and variables are where costs might fluctuate throughout the year.

Think about setting a contingency fund within your budget – unexpected expenses or emergencies can crop up at any time, such as repairs or replacing equipment, so by putting aside a contingency, it will mean that you are ready to expect the unexpected!

Monitor and review regularly

It is no good setting a budget at the beginning of the year and putting it to one side, never to look at it again. Most of us are used to keeping a close eye on our own bank account, checking direct debits, payments in and payments out, and monitoring our personal spending habits.

Treat your business budget as you would a personal bank account – monitor and review it regularly and keep an eye on its financial performance. Compare actual results against your budgeted figures, identify any  variations and act where necessary. Regular reviews will mean you are more likely to stay on track.

Get help and advice

Budgeting is a vital tool for small and medium sized businesses when it comes to effective financial management. Developing a comprehensive budgeting strategy that aligns with your goals is an ongoing process that requires dedication and attention to detail but can make a big difference for the success of any business.

We always recommend getting professional advice – using a qualified accountant to help with your budget preparation, analysis and monitoring can provide valuable insights, identify areas for improvement and ensure you comply with any financial regulations or requirements.

We’re here to help, and the team at Westcotts is on-hand to advise you about budgeting for your business. Contact Sean Bolter or Matt Keane for more information.