July presents a golden opportunity for small businesses to reassess their financial management, and specifically, establish a budget for the upcoming financial year. While numbers and budgets may evoke fear, it is vital to understand their profound significance in measuring performance and ensuring the success of your business.
From previously conducted surveys, the number one area they see themselves falling is around financial management and financial control. Many feel hesitant to put in the effort required to create and maintain a budget for their business.
This hesitation can stem from various factors, including perceived complexity, time constraints, or a lack of understanding about the benefits that come with budgeting.
Businesses that use budgets tend to be more organised in their financial management and record keeping, have a clearer direction, effectively handle problems as they arise and have stronger control over how to spend money in their business. Remember, a budget can bring visibility and insight so decisions can be made quickly, and businesses can stay on track. It also empowers owners by providing data and knowledge, instilling a greater sense of control as leaders.
The best approach to budgets is to regularly compare actual results with the budgeted figures. This allows for real-time issue management and prevents problems from spiralling out of control. If the concept of budgets feels overwhelming, it is advised to reach out to your accountant or CPA to assist in interpreting the numbers for you.
Investing in professional advice along the way is better than dealing with potentially severe consequences later on, which, if left undetected, could be catastrophic later down the line.
A real example of this has occurred at SEIVA, where we had a very stressed client who didn’t have enough money to pay bills each month. By implementing a budget and conducting monthly check-ins, we were able to discover a cashflow leakage within the client’s business. Prompt action was taken to stop the leakage and transform it into a cash surplus over the following year. This process allowed the client to regain control and focus on running their business, alleviating concerns about short-term cash flow.
Based off this we have identified 6 ways to effectively budget and fast track your progress.
6 ways a budget can fast track your progress
- Goal setting and planning
A budget acts as a roadmap, offering a clear vision of your financial goals. By aligning your business objectives with your projected income and expenses, you can prioritise investments, allocate resources efficiently, identify potential areas of cost reduction and ensure your business is moving in the desired direction.
- Performance Measurement
By comparing actual results against projected figures, you can identify deviations, evaluate the effectiveness of your strategies, and make timely adjustments to stay on track. This will help you identify areas where you are excelling and areas where improvements are needed and can take corrective actions to improve business operations.
- Cash Flow Management
By projecting your income and expenses over a specific period you can anticipate cash inflows and outflows, enabling you to plan for any potential shortfalls or surpluses. By having a clear picture of your cash flow, you can make informed decisions about managing working capital, ensuring timely payments to suppliers, and maintaining a healthy cash reserve.
- Informed Decision-Making
You will become more confident with strategic decisions by using financial data and insights. Whether it’s expanding your services, hiring new team members, or exploring marketing initiatives, a budget provides a financial framework that guides your choices, mitigates risks, and maximises returns.
- Team Accountability
You can create a sense of ownership and responsibility by aligning individual and departmental goals with the overall budget. This encourages your team to be mindful of spending, be more proactive in achieving targets and contribute to the business’s financial success.
- Early Warning System
A budget can alert you to potential financial issues before they become critical. By regularly monitoring your actual performance against the budget, you can identify deviations, unexpected expenses, or revenue shortfalls. This enables you to take prompt corrective actions, such as adjusting your pricing strategy, reducing costs, or seeking additional financing, to address any emerging issues.