As a business owner you probably know that you should sit down and prepare a budget, but you’re not sure when you should do it or even why it’s important.
When should I budget?
At My Accountancy Place we believe that every business should have a 3 year budget in place at all times, something that can show you whether the business model that you have in mind will work, whether you can be profitable and how things change as you grow the business.
If your business can’t make money from what you are planning then you don’t really have a business.
You need to be able to challenge everything that goes out of your business. Nothing is obligatory. So understand every cost and question whether it’s necessary, delivers value and is being sourced at the best price. Every overhead typically requires 5x its value in sales to protect your margins.
Why is a good budget important?
Once you have your budget in place you are better placed to move your business forward. You understand what is needed to make the business a success and what you need to do to get it there.
This can then allow you to build performance management techniques and principles in to the business. By setting Key Performance Indicators (KPIs) for the key areas of the finances you can very easily keep an eye on the performance of the company. Having the right reporting in place can give you a very quick overview of these KPIs and help keep you on track.
How often should I update the budget?
So once you’ve set your budget, got your KPIs in place and got the right reporting in place to monitor the performance you’re done right? You can leave the budget in the drawer for the next 12 months?
Wrong – your budget should be a live document that you refer back to regularly. You should be looking at it weekly, if not daily, to make sure that you are still on target to achieve your goals and, if you are off target, what you need to correct to get back on course.
Without doing this you are leaving everything to chance, and you may as well have not put the budget in place.
Successful businesses don’t become successful by luck, they become successful because they understand the key role that the finances play.
If you want to know how you can make your business successful and how we can help you to put a budget in place and project your financial performance get in touch with us here