As per Investopedia the definition of a Budget goes as follows: “An estimation of the revenue and expenses over a specified future period of time.”
A new year means a fresh start and a chance to get your business’s finances back on track. Now, from a woman who can’t even manage her own budget, which means it is practically non-existent, financial forecasting and budgeting sounds as much fun as having a root canal or colonoscopy.
But, from a business perspective, it’s a fundamental part of managing revenue and expenses throughout the year. It is essential for figuring out whether or not you have the resources to operate, expand, and grow. It can either be a management tool if used correctly or it can become an obstacle to management.
Try out these tips to make sure that you have the funding necessary to keep your business running at its optimum level:
Always have a backup plan – Responsible businesses have a plan A, B, C, D for when their budget suffers due to the loss of important clients, production gets disrupted due to unforeseen events, staff resignations, or new competition suddenly emerges and always keep their budgets close at hand.
- Set Financial goals – Take some time out and think about what you would like to achieve in the coming year, whether it is to pay off debt, pursuing a new business venture, expanding your business or increasing your marketing efforts. Write it down on paper and be specific with the most urgent financial goal at the top of the list. Then put your list of goals in a place where it will be visible and you would have a constant reminder not to lose focus. Remember “Out of sight, out of mind.” It must be the result of coordinated input and effort by you and your management team.
- After you have set your goals, assess the risks – Risks are part of any business venture and can have a potential financial impact on your business. Being aware of any threats and having a clearer picture beforehand can help you with crisis management should the rubber hit the road.
- Overestimate your expenses – Like a marriage, you don’t go into business expecting it to end badly, or at all, however there will be times that unexpected expenses creep up on you like a windshield on a bug and it is good to be prepared for it. To do that you can look into the market trends from the previous year to help you determine what this year may look like and then make an estimation according to that on how much extra you should budget for for any unexpected expenses.
- Review your budget on a monthly basis – Reviewing the budget on a monthly basis will help you identify problems before they cost the business too much time or money. Rather stay in the loop and know what goes on in your business than getting a mathematical confirmation of your suspicions at the end of the fiscal year.
- Practice makes perfect – Unfortunately none of us were blessed with the gift of clairvoyance and regardless of how tough it may be to estimate the future, forecasting will improve and you’ll be able to control the results if you use a budget.
- Have a purchasing policy with predetermined approval rules set up for each budget. With approval rules in place, employees will only be able to spend company money if approved by managers of specific budgets.