I know what you are thinking – I hate numbers and I hate budgeting even more! They are so boring and I often get it wrong. I understand why you say that and so many people think the same way. The truth is that it is vital that you get the budget as accurate as possible so you know where to focus on and how to get to where you are going.
What do I need?
- Last years ‘numbers’
- A good place to start is by having a quick look over the completed year just finished.
- These MUST BE accurate.
- A pen and paper (old school I know) – if you want a spreadsheet preferably with last year numbers in already.
- Peace and quiet. No distractions
- Your accountant on speed dial.
- Your accountant does not have to be part of the budgeting process but can offer you information as to what figures are where and what they were made up of. No one knows your business as well as you.
- They may be able to extract reports so you don’t have to work them out yourself
So here are the 5 steps to accurate budgeting.
- Costs
- You may think that it’s all about how much money you can bring in but in reality costs are critical too. An estimate of about 60%/40% costs to income importance
- Direct costs
- These costs are always there – payroll, rent and telephone are common examples.
- Do not underestimate simply because they are always there.
- Always look and relook at these to see if you can reduce them somehow without compromising their function in your business.
- eg: Do you really need 100Gb of data or unlimited free minutes on your cell phone?
- Other costs:
- These can be the sneaky ones and need to be monitored.
- Examples include computer expenses and audit fees.
- Increases:
- Everything increases every year and this needs to be monitored closely
- Important items to watch for are fuel prices, utility bills and the price of raw materials especially if you are importing materials
- Salaries and Wages can also creep up undetected.
- Realistic expectations
- Too many companies push unrealistic expectations on their staff. They must have targets of course, but set them realistically.
- Example: if you have just had your best year ever, it is not unlikely that the next year will be even better. It might and that is wonderful but realistically it may not be.
- Conversely, if you have a rough time of late for various reasons, the next year may well be a bumper year.
- Look at what the industry is doing. If the industry is expecting a 2 – 3% increase – don’t set a 12% target.
- Ask for help
- There are many people in each industry and you probably know a few – ask them what they think the next year may do.
- Seeking professional help is also a favourable move. They have many years of experience in guiding businesses in the right direction.
- Contact us if you would like our input. We will never prescribe what you should do but rather guide you in the right direction and let your expertise in your industry take over in the final decision.
- Play with the numbers
- Fiddle with the numbers – have some fun and see what is possible. Dream a little.
- These numbers are NOT final and will change monthly (possibly weekly)
- Always strive to keep costs down to a minimum but always have a buffer – this creates a ‘just in case’ reserve for those unexpected expenses.
Although numbers may not be your strong point, your business requires you to direct it in the right direction. An accurate budget is key to this.
Here are a few more articles on this topic, you may also want to contact us regarding your budgeting process
Budget: time waster or time saver?
Why are you not using a budget
This article was updated on the 7th April 2021