Your business budget can be a key weapon in your company’s armoury – providing it contains relevant information and you update it regularly. Many businesses construct elaborate, exhaustive budgets that are just too complicated for regular use. QuickBooks provides you with a five minute guide on how to create a business ready budget.
Alongside your business ready plan, your business budget will enable you to make key decisions with confidence and keep you on course in the months ahead.
Small business ready budgets explained
Your business ready budget estimates your income and outgoings for a certain period of time. Most often companies create annual budgets, but they can cover as many days, months or years as you like.
- Revenue might be generated through sales, interest and other sources.
- Expenses are anything from rent and payroll to marketing, utilities and other costs.
A budget shows how you plan to allocate resources in the future.
Why build a business ready budget?
Creating a budget can help your business in several ways:
- Better forward planning. A good business ready budget will help you understand how much you have available to invest in marketing, what would happen to your cash flow if you hired an extra member of staff, or whether you can afford to expand. It’ll help you see how to use income to meet your business goals and what expenses you face.
- Manage your cash flow more successfully. You can closely monitor how well your company is doing by comparing the figures in your business ready budget to real-life performance. For instance: is your income as high as expected each month? Do you have to wait months for payment after invoicing suppliers? Are you overspending in certain areas?
- Get finance more easily. If you’re trying to borrow money from a bank, looking for venture capital or even going on Dragons’ Den (rather you than us), you’ll be sent packing if you don’t have a clear business ready budget which you can explain and justify. It shows you’re taking things seriously and planning ahead properly.
How often to budget
Most businesses find it’s best to set a month-by-month business ready budget for their entire fiscal year. This means that you set a budget for each of the next 12 months, so you can compare actual performance to your budget each month to make sure you’re on track.
If your budget covers the whole of the year in one go, you have no way of checking how you’re doing partway through the year.
You don’t have to create a month-by-month budget, of course. You can opt for weekly, quarterly, annual or semi-annual intervals in your budget instead.
How to create a budget
There are many tools available to help you create a budget. But no matter whether you choose simple pen and paper, spreadsheets or accounting software like our own package, QuickBooks, there are three key rules to follow:
- Check your previous business ready budgets. If you’ve ever created a business budget before, that’s where you should start. Dig it out, use it as a starting point and change the figures as required. Make sure you think about what did and didn’t work last time. Was it too complex to update regularly? Did the spending categories fit how the year went?
- Do your research carefully. For your business ready budget to be really useful, it needs to be as realistic as possible. So instead of plucking numbers from the air, you need to do some proper research. Your company’s past performance is the best place to begin, but also look at typical expenses and trends in your sector.
- Keep your budget as simple as you can. Striking the right balance between usefulness and complexity is vital. You don’t have to list each expense in minute detail – that just makes it harder to update your business ready budget. Allocate input and expenses to broad categories like supplies, utilities, marketing, sales and staff.
Making use of your business ready budget
Some businesses find that after they’ve created a budget, it then gets forgotten about until before they know it a year has passed and it’s time to put together another one. But to get as much as you can from your budget, check it regularly and frequently and tweak it depending what you’ve learned.
A business ready budget is meant to be a living, breathing document that you use, change and update over its lifetime:
- Compare your budget with what actually happens. Record your actual expenses and income in each category every month (or week, quarter or whatever interval you’ve settled on). If you’re using budgeting software there’ll be a specific place to do this. Revisit your budget regularly to see if what’s actually happening is different to what you expected. Build this process into your schedule.
- Reassess your budget and learn from it. As you compare your budget with the actual figures, you start to work out why there’s a disparity between what you expected and what happened. Are there seasonal variations? Is the wider economy affecting your company? This is vital information that can improve your company and help you budget more accurately next time.
- Question all your expenses. Once you’ve broken down your expenses, it becomes much easier to re-evaluate each in turn and look for opportunities to save money. Can you reduce what you spend on services and supplies? Is your enormous marketing spend failing to bring results? Shop around and find ways to cut your spending.
- Be flexible with your business ready budget. Although your business budget is a handy way to stay disciplined, don’t regard it as the law. Don’t use it to set absolute limits on your spending – instead, make sure you are moving towards your business goals and can justify any overspend or underperformance. If it looks like you need to rethink parts of your budget, do so.
If you’re creating a budget from square one, it can seem like a daunting task. But over time you’ll start to see that budgets don’t have to be complicated or overwhelming. Actually, these simple planning tools can take much of the guesswork out of running a business, helping you to run things more smoothly and profitably.
Find out how QuickBooks Online can help you create business ready budgets and much more.