Budget planning is an integral part of any business regardless of size. Here are our top tips for effective budget planning:
1. Make sure that your budget is aligned with your business strategy.
Developing a comprehensive financial plan for achieving the financial goals of your organisation is a great start but its vital that this is aligned with your short and long-term business goals. If you don’t have the finances to achieve these goals it may be necessary to re-write or scale back your business strategy or apply for finance to invest in your development plans.
2. Consider fixed and variable expenses.
Think about those costs that are the same every year and those items on your purchase ledger that may increase or decrease year on year. Fixed expenses can be scheduled throughout the year and you will be safe in the knowledge that you have apportioned the right amount to pay for these costs. Variable expenses are more of an unknown entity but by comparing with previous years you should be able to allow for the minimum and maximum cost of these expenses and budget accordingly.
3. Think about adopting zero-based budgeting.
Zero-based budgeting is a good way to track all business expenses and calls for all outgoings to be justified. Those personnel responsible for budget planning start with a clean sheet and rather than simply carrying forward last years budget, every function within the organisation is analysed, a decision is made whether or not to continue with said function and costs are added to the budget if needs be.
4. Look at available resources and where investment may be required.
Carrying out a full review of your available resources whether this be staff, technology or machinery and checking that this fits with your short and long-term business goals will ensure that you avoid any surprises in the future.
5. Perform competitor research.
Carrying out benchmarking, market comparison and having an awareness of industry dynamics will help you to budget for any big changes in your marketplace and allow you to keep capital aside for investment where necessary.
6. Include all stakeholders in the process.
By making sure that all relevant department heads, directors and board members are included in the budget planning process you will have a better chance that your business strategy will succeed as all driving forces will have bought into the company vision for the coming year.
7. Measure your business performance.
By identifying Key Performance Indicators (KPI's) for your business you will be able to measure how effective historic budget plans have been and make plans for future improvements.
8. Allow for the cost of legislative compliance.
There are a number of regulations coming into play in 2018, E.g. GDPR, DCP161, DCP228, all of which may require investment. This could either be in form of internal resource or external investment in energy efficient technology. Make sure that you include this in your 2018 budget.
9. Make sure that your business budget is achievable.
It's vital that your business' budget plan and business strategy is achievable. It's easy to get excited about all the potential opportunity available in your industry sector and to invest the rising stars in your business however, if your business plan does not allow for the necessary budget to continue to nurture your mature products or services which generates a large proportion of your income, it may be that cash flow will become an issue in the future.
10. Don’t be afraid to tweak your budget where appropriate.
Your company's annual budget should be set up to accommodate potential business opportunities and any challenges/set backs that you might come up against in the forthcoming year. By building flexibility into your budget plan you will be able to manage your business' cash flow effectively.