Budgeting and Forecasting
Budgeting and Forecasting is a significant area which is often overlooked in small businesses yet, it is so useful to take your business forward to the next step in terms of growth.
What is a Budget?
Budgets are an allocated amount of money to a chosen area of your business. For example, you set a budget of £5000 for Marketing expenses. You would detail how you intend to split that marketing budget for example, £1000 for website update, £500 for new printed marketing materials etc.
You have in theory, allocated a pot of money to an area of your business.
Budgets are quite helpful because they help you to control your business’s cash flow rather than IT controlling you.
What is Financial Forecasting?
Financial Forecasting is looking at your previous year’s sales and expenses figures and predicting (based on the market conditions) how much you’ll bring in within the next year.
A Forecast is used at regular intervals in the year to compare how you are actually delivering against the predicted forecast.
It’s a lot more effective to look at how you can influence your Forecast rather than dwelling on your previous year’s figures.
Why do I need a Budget and a Financial Forecast?
Imagine that your business is a car and you need to get to your destination (your desired vision for the business.)
Your Budget is your Fuel Gauge – you’ll need a certain amount of fuel (income) to get to your destination and you may need to refuel at regular intervals (more sales) especially if it’s a long journey. Your fuel gauge tells you how close you are to an empty tank (no money left in the pot.) Ideally, we would never like to see our fuel gauge dip into the red. It’s the same as our business bank account. A Budget will help you stay out of the red or at least flag up a warning for the need for more fuel.
Your Financial Forecast is the expected route your journey will take. When you plan a route you know to expect certain delays in certain conditions (e.g. your business may experience a decrease in sales in holiday season) and by being aware (using your Forecast) you can determine how you’ll deal with those delays (e.g. increase marketing activity beforehand/ reduce sales targets) and how much time it will add on to your journey.
If you are looking for a Sat Nav for your business, look at Management reporting. You can use your planned route (Forecast) but your Sat Nav (Management accounts) will calculate alternative routes around any unexpected blockages in the road so that you can still make your destination in good time.
Without a Budget and a Financial Forecast, you’ll be stopping and starting and you may just end up giving up and going home. Don’t give up. Plan your business journey and make sure you have enough fuel to get there.
How can Tidy Numbers help?
We can help you keep the fuel tank topped up and put you on the right road.
- Create a Budget the business with a budget breakdown per department
- Produce a Financial Forecast on a quarterly/ annual basis
- Help you analyse and understand the figures
- Provide regular reports on your Actual Spend vs Budget
- Produce a regular report on Actual Sales/Expenses vs your Financial Forecast.