The Fundamentals Of Designing A Business Budget For Your Company
The Lombard Accountants team are strong believers that a strong business plan can only help your business at any stage of its growth. Fundamental to growing your business plan is a business budget, this is one of the essential tools in managing your business finances and actively turning your business into a success.
Essentially, a business budget shows what you plan to do with your cash over the next year.
There are a few things you should consider to get a complete picture of your business’s fiscal health. You need to review your companies profit and loss statement, the balance sheet, the cash flow forecast and the overall budget. Compiled together, these reports allow you to make an informed business decision and monitor your financial performance.
Why should your business have a Budget? Here are some solid reasons from the Lombard Accountants team.
- Forecast sales and expenses according to monthly or quarterly variations.
- Evaluate performance over time, including changes or patterns.
- Get really familiar with where your money goes and where it comes from.
- Clarify targets and goals and use the budget to help you focus and achieve those goals.
- A budget will help you to see the big picture and stay motivated over the long term.
Where to start?
A basic budget takes your businesses known income and expenses then makes certain assumptions about the timing of income and planned expenditure over a period of time. The basic budget is based on cash flow in and out of your business.
Over time, as you start to see the benefits of using a budget, your budget should evolve into a more sophisticated version that includes non-cash elements such as provisions and depreciation.
Most businesses will start with one budget but over time they may evolve to have three budgets. Examples of these budgets are.
- Business as usual – the next year’s budget is based on current year income and expenses, with perhaps a small adjustment for consumer price index increases.
- Worst case – budget is based on a pessimistic view of next year’s performance.
- Best case – budget is based on an optimistic view of performance over the next year.
Lombard Accountants believes that once you have one budget (or more) set up, your company will reap the rewards and plan better because you can then run your current financial reports against the budget to see how you are tracking. This allows you to make rational business decisions in real-time to adjust accordingly.
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