Once you set a budget you should review it regularly. Circumstances change and it’s important to review your outgoings and make cutbacks on unnecessary expenses and shop around for better prices from your suppliers.
When you set a monthly budget you know how much money you have available to spend. You must list all of your expected income each month and all your outgoings, we also advise you to have a contingency within your budget to allow for unexpected costs. After all, things don’t always go to plan, do they?
This is what the budget will do for you:
- Controls your cash flow
- Indicates the amount of money available to spend
- Gives you an insight into your future financial position
- Helps you to prioritise
- It can highlight strengths and weaknesses of your business
- Will enable you to reach your goal
Cashflow
Cash flow is the amount of money coming in and going out of your business. Any type of transaction which involves the movement of money is your cash flow. Many businesses get confused with the word cash thinking it relates to hard cash, cash that you can physically see and touch, but that’s not the case at all.
Money received by a business is called revenue or income. The outgoing transactions of a business are costs or expenses.
It’s important that your revenue is more than your costs to ensure a healthy cash flow and to help you keep out of the red. The healthier your cash flow the more likely it will be to access funding from investors or obtain loans or grants which may be critical to the success of your business.
If you have a bookkeeper speak to them about how to improve your cash flow, even if it’s already a healthy one, there’s always room for improvement. Remember, every penny counts in business!
Future of your business
Having an idea of how much you will spend each month will allow you to plan ahead. You can forecast how much your turnover will be and what steps you need to take to get there. Your bookkeeper can produce insightful reports to help you with this.
Prioritise
A budget will help you to prioritise your outgoings. If you’re nearing your budget and you still have things to buy then you know that some things may have to wait until another month. It’s no good splashing the cash all in one go, this will just result in a poor cash flow which then has an impact on other areas of your business.
Strengths and weaknesses
Your budget will highlight the areas which need working on in your business. You may be overspending in certain areas. Once you have highlighted these areas of concern then you can investigate why you are spending more money than you need to be and find out what you can do to reduce the costs.
As well as highlighting weaknesses your budget will show you what your strengths are too. You can then invest time into concentrating on the development and improvement of these strengths. This will lead to your business success.
Goals
When you have set your budget and all of the above areas have been reviewed you can then set realistic goals based on your findings. Each of these areas will highlight the steps you need to take in order to achieve your goals. We can all dream but they will only come true with a plan and hard work. Breaking your goals down into smaller steps will make them much easier to achieve.
If you need some assistance with setting your business budget then please get in touch.
