Having a solid business budget in place has a lot of benefits including planning for the future, managing cash flow and enabling informed decision making… (Read More: Why do I need a budget?). In this post we guide you through the 3 steps to creating your first business budget.

Step 1 - Create a financial overview

(What if I’m just starting my business?... In short: Use estimates based on market research and industry standards)

If you use accounting software:

(Xero, Quickbooks, Sage, Kashflow, MYOB etc) - If you have a bookkeeper, chances are they’re using one of these.

Export a P&L for the last complete period i.e. Jan-Dec or Apr-Mar depending on how you run your business calendar year. Broken down month by month ideally.

Use our budget template or create your own (If you have a lot of categories and a complex business model then perhaps some reporting software could be useful - get in touch for guidance)

Tip: If this feels like a lot of work then I would suggest implementing the 80/20 principle which dictates that 80% of your expense will sit with 20% of your suppliers/categories - start with the largest income and expense categories to begin to get an overview.

Go to Step 2

If you don’t use accounting software:

Start with a simple financial overview spreadsheet. You can use ours...

Input your income and expenses from a set period i.e. Jan-Dec or Apr-Mar depending on how you run your business calendar year. - use order forms, bank statements and any records you have to gather the information. Categorise items in whatever way seems logical to you and your business.

Tip: If this feels like a lot of work then I would suggest implementing the 80/20 principle which dictates that 80% of your expense will sit with 20% of your suppliers/categories - start with the largest income and expense categories to begin to get an overview.

Step 2 - Building your budget

Once you have a solid overview of where you’ve been then we can start to look at where you’re going…

Duplicate the financial overview you've just created and adjust figures based on your knowledge of your business - Any big jobs coming up or any abnormal expenditure that you know of? (e.g. replacing some equipment or a new hire)

Things to consider when adjusting the predicted Revenue:

• Be as realistic as possible - you’re not helping anyone with wishful thinking. Accuracy now allows you to prepare accordingly and plan your route to success.
• What data do you have to help accurately estimate new business? - Can you calculate the success rate of previous marketing and sales initiatives to suggest how your income might vary over the next 12 months (e.g. Perhaps you can see that £10 spent on ads results in approx. £20 revenue increase 1 month later)

Things to consider when adjusting the predicted Expenses:

• Fixed expense vs variable expenses (& Ad Hoc)
  • Fixed expenses are amounts that remain the same each month/quarter (e.g. Rent). However these may still have changes coming up like an annual increase for inflation?
  • Variable expenses are fluctuating amounts and could include things like materials, casual staff or travel costs. The idea here is to have an allowance/aim for these.
  • Ad Hoc expenses happen here and there and could include things like new equipment. These are harder to predict but perhaps you know of some one off expenses that you’re expecting in the next 12 months?
• Plan for the inevitable - things break, staff leave etc. Consider having an allowance set aside for these circumstances.
• Include paying yourself - what do you need each month to live? (Perhaps you need to repeat Step 1 for your personal finances to figure this out?)

Step 3 - Using your budget

Great now you've done that you can save it in a folder on your computer and never look at it again… NOPE

For your budget to have a positive impact on your business you need to utilise it as a management tool.

• Schedule periodic check-ins to see how you’re tracking vs budget - If the numbers are different to what you had predicted then why? and what can be done to get back on track?
• Guide rails: Your budget shouldn’t be etched in stone and can be adjusted as the year goes on but use it as a reference to keep you on the right path.
• Decision making: Big business decisions can now be validated against your budget. Can you afford it? What impact will it have on the numbers down the line?
• Efficiency improvements: Your profit is the gap between income and outgoing - What can you do to grow that spread? Where is the money coming from and where is it going - are there areas that can be improved upon?

Budgeting can be a daunting task to tackle at first but will absolutely be worth it! If you need some additional support or have questions during completing these steps feel free to book in time to talk with us and see how we might be able to help…