Budgeting – Keeping Your Business On Target!
Many small businesses only think about doing a budget when they have cash flow problems. A financial budget is like a financial scorecard for your business to which you can compare actual results throughout the year. Without it, how will you know where your business is financially?
Not having a realistic budget is a bit like driving along a straight road with your hands off the steering wheel. At some stage, your business will start drifting off the straight and narrow. When planning a budget, start with the vision you want your business to achieve for the year. What does the vision mean for profit, sales and cash flow? How will it impact your margins, fixed costs and variable costs?
If you think this is all too much effort, think again. By just going through the process you will get a good understanding of your business and where it is heading. If you don’t understand your business, you can’t expect it to be a success.
So where do you start when setting a financial budget? Sales which is the engine of your business. You should look at industry and economic cycles, not just what you sold last year. What has changed and what is likely to change? Next you should consider your costs taking into account your business objectives, price increases, promotional campaigns etc. Talk to your staff, they will be able to provide business insights and they are more likely to commit to the plan if they are involved it its development.
Budgets and forecasts are about planning for profit. But just as important is planning for cash flow. A cash flow forecast is necessary for you to foresee likely cash shortages. Knowing when they could occur allows you to plan to borrow cash or reduce inventory to cope with any shortfalls. Do you have genuinely useful financial and cash flow budgets? They are essential management tools!
Plus a couple of quotes:
A good battle plan that you act on today can be better than a perfect one tomorrow.
General George Patton
People often say that motivation doesn’t last. Well, neither does bathing – that’s why we recommend it daily.
Zig Ziglar, motivational speaker.
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