Drawing up a budget

Tuesday 6 December, 2011

By Helen Thomas - helen@consumerchoices.co.uk

An effective budget is essential to your business and it needn’t be a nightmare.

For business mavericks who declare flamboyantly “I have flair and passion, I have no need for budgeting”, the bad news is, you are wrong.

Whether you are just starting out with a new business, or looking to improve an existing one, having a good budget is the 101 of business success.

Effective budgeting puts you in control of your business, enabling you to:

• Meet your key objectives
• Grow your enterprise
• Make plans for the future
• Secure investment
• Recognise issues before they become a threat to your business.

However, even for the numerically challenged among us, drawing up a budget doesn’t have to be nightmare. Here are our top tips for drawing up a budget:

• Make time for planning - a budget shouldn’t be drawn up in half an hour after a few glasses of wine - alcohol is generally an unhelpful ingredient in the budgeting process.
  Investing time in planning and writing your budget ahead of the new financial year should make managing your business finance and strategy easier for the rest of the year.
• Get technical - Make use of available software. However, expensive whizz-bang technology isn’t necessary unless you are working with particularly complex figures or have money to burn. An Excel spreadsheet can often do the job adequately.
• What sort of budget? - The type of budget you draw up depends largely on the data you have to work with. If your business is into its second year or more you will have a wealth of data available from the previous financial year to help you estimate future income and costs.
  These should only be your guide though. Remember to take account of variables that may apply to the coming year. Get in touch with suppliers for realistic costs on materials and goods, make adjustments for inflation, rent increases, salary rises and so on.
  If this is your first year you’ll need to draw up a zero-based budget built upon the profits you require.
• What to include - All income in as much detail as possible, all expenditure broken down into fixed costs - such as rent and insurance; variable costs - including wages, cost of materials, utilities and so on; and one-off capital costs - for example, computer equipment. Income less expenditure = profit.
• Keep it real - There is no room for guesswork in a good budget unless you are willing to forego your salary or cancel the staff Christmas party as the end of the year looms large and the sums just aren’t adding up. Ensure your figures are as accurate and realistic as possible.
• Cut your costs - There are various ways you can boost your profits, and cutting your costs is the simplest place to start. Shop around for suppliers who will give you the best prices and make sure you are getting the best deal for your utilities. Use our price comparison service to find the best prices for your business broadband, energy and landline.
• Wriggle room - Allow some slack in your budget for unforeseen events. If they arise, you’ll be covered, and if they don’t, then it’s extra profit for your company. Build cash reserves into your budget as soon as possible to allow you to keep the business operational during any rocky periods that may come your way.
• VAT - If you are a VAT registered business, don’t forget to submit your VAT return to claim back VAT paid by your business for goods and services.

And finally:

Stick to it - Having a budget is only useful to your business if you stick to it. That means reviewing it often and revising an a regular basis - weekly, monthly or quarterly depending on how tightly you need to control your figures.