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Budget for your small business

Everyone has heard of a budget, but do you actually take the time to set a budget for your small business?

A budget is an estimate of financial targets (usually income and expenditure) for a set period of time, usually six monthly or annually.

A budget is usually derived from an analysis of past performance and future plans and can be out of date the moment they are published.

There are several methods of budgeting that are commonly used, including;

  • Incremental budgeting,
  • Zero based budgeting and
  • Activity based budgeting

Incremental budgeting takes last year’s actual figures and adds or subtracts a percentage to obtain the current year’s budget. This is probably the most common type of budgeting that businesses undertake. However, in my opinion, this method can result in a lazy budget, with inefficiencies carried forward, and little thought invested in the process.

Activity based budgeting is sometimes called top down budgeting and works out the inputs required to meet the income target. The activities required to meet the income target are identified and then cost those activities. This method is time consuming, but results in thorough understanding of the business, activities and drivers of profit.

Zero based budgeting involves starting a ‘zero base’ at the start of every budget period and analysing needs and costs for each and every function within the business. This should allow you to allocate your finances accordingly.

So why take the time to complete a budget for your business?

Setting an annual budget can bring many benefits to your business including:

  • Controlling expenditure; having an organised, detailed plan allows you to easily analyse expenditure from month to month and determine what expenditure can be justified for your business and what cannot.
  • Setting financial guidelines/expectations for plans; budgeting will allow you to set a financial precedent as well as accurately forecast for months and years ahead as you organise and keep record of expenses and income.
  • Identifying issues and anomalies; if expenditure is greater than you expected for the month then having a budget as a reference will help with to identify what the issue is and/or where the extra costs came from. This can save a lot of guess work and time that you don’t have when running a business.

How can Cameo Help? At Cameo Business Consulting we are experienced in all types of budgeting and are able to easily help your business set up an efficient and effective budgeting plan for you.

 

Related Tag : Bookkeeping And Payroll Gold Coast

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