As a business owner, it's crucial to set up a budget to manage expenses and plan for the future, especially in today's unpredictable business environment. A well-thought-out budget helps you keep track of your business's financial progress and plan strategically for the long term.
Having a clear budget and business plan allows you to handle cash flow, allocate resources effectively, and take careful steps toward new investments.
Why is a budget necessary?Every business should have a documented budget to make sound financial decisions, evaluate the current financial situation, and plan for financial goals. A budget helps identify areas where spending needs control or where revenue can be increased, ultimately boosting business profitability. It's also crucial when applying for a business loan or seeking funds from investors, as it provides a clear roadmap and demonstrates the business's ability to repay loans.
When should you do it? Create a comprehensive 12-month budget annually, with a month-by-month forecast for the next year. Regularly review it, preferably monthly or quarterly, along with management accounts to act quickly and keep the business in line with the budget.
What should it include? Revenue projection - Have a clear month-by-month revenue forecast agreed upon by the sales team, with measurable KPIs and clear expectations.
Improving gross profit margin – Monitor and manage gross profit margins by understanding the impact of rising costs and forecasting sales price increases. Set measurable KPIs to track throughout the year.
Planning a 12-month cash flow projection – Create a month-by-month 3-way forecast (Profit and Loss, Balance Sheet, and Cash Flow) from the financial plan. Update it regularly for a forward view of cash flow throughout the year.
Contingency planning – Develop an emergency plan, allocate emergency funds, and create strategies to mitigate risks for unforeseen circumstances.
Once you've outlined your financial goals for 2024, detailing your plan enhances the ability to assess feasibility and devise strategies for attainment. For assistance with budgeting or financial planning, feel free to contact one of our team via info@oldfieldadvisory.com or call 02476673160
Please note: This article is provided for information only and was correct as at time of writing (13/12/23). Any lists and details provided above are not exhaustive and are not intended to be full and complete guidance. No action should be taken without consulting detailed legislation or seeking independent professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this article can be accepted.
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