The Significance of Budgeting to SMEs
Running a business is not an easy task, so planning for it is not just recommended; it is a requirement for success. Alongside a strong business plan, an accurate and thought-out budget can be one of the most powerful tools a business has at its disposal when looking towards the future.
Not only can a well-made budget assist you in making important decisions, but it can also provide useful insight about whether a business is moving towards achieving its goals and objectives, in addition to being a useful way of monitoring performance during the year.
Some of the other key functions a budget can assist with include:
· Limiting expenditures
· Creating a financial roadmap
· Securing loans
· Bringing on new partners
· Attracting investors
Despite the important role a budget can potentially play in maintaining a business’ long-term health, many SMEs still fail to create and fully utilize one.
Some of the reasons business owners typically give for not having or using a formal budget include: “I don’t know how to make one,” “I don’t think it is a good use of my time,” “It seems too difficult,” “My business is not big enough to warrant creating a budget,” and “There’s no need to make one — all the information is in my head.”
No matter what the excuse for not having one is, it is still an imperative part of successful business planning — but there is still time to create a budget and make the most of it moving forward.
Yes, developing one takes a bit of time, but it is important to remember that the benefits are priceless.
If you are struggling to make a start on a budget, but want to support the growth and development of your company, here are some tips to help get you on the path to stronger financial foresight:
Know Where to Start
The best way to start putting a budget together is to look at your accounts from over the past year and write down your overheads, or operating expenses. These do not change very often and are usually quite easy to calculate.
The next step is to look at your direct costs and consider what gross profit and the gross profit margin you think you will make on each of your product lines. This will give you an idea of what you will be earning compared to what you are spending.
Do not Overcomplicate It
It is easy to make a budget complex and convoluted but do your best not to. A budget can be as simple as writing some expectations of where you would like to be financially next to last year’s figures on your accounts.
A budget can even be prepared by utilizing easy-to-use software that ties profits, working capital, and cash together, along with overheads.
Put Together a Sales Forecast
An estimate of what a business’ sales will be in the future, a sales forecast is one of the most important parts of not just your budget, but also your overall business plan.
Without one, it is extremely difficult to successfully manage your company’s stock and cash flow, let alone plan for future growth. To create a successful forecast, there are many aspects to consider, but the most important thing to remember is that these numbers should not be ‘finger-in-the-wind figures’ but educated estimates based on previous trends you have noticed from looking at past sales data.
Seek Assistance
If you are struggling to develop a professional and hard-working budget, call an expert. Financial advisors are an added expense on your budget but can save you time and add their experience to the preparation of your budget.
A working budget is a crucial instrument in ensuring the success of your business, and no company should be without one. As Benjamin Franklin said: “By failing to prepare, you are preparing to fail.”
Do you need a professional person to develop your company’s budget, send an email to team@accounteer.com and we shall respond as soon as possible.
