Ensuring you have enough money to run your business is critical to success. But many business owners rely on guesswork instead of conducting systematic forecasting.
It can feel boring, complicated, or time-consuming. But it doesn’t have to be that way.
We have a few key tips to help make budgeting and forecasting easier.
Benefits of effective budgeting and forecasting
Effective cash flow forecasting helps business leaders make faster and more informed decisions through short-term and long-term business planning.
Maybe you are a new business owner, nervous about the myriad of unknown financial outcomes, or maybe you are an existing business owner wanting to improve or move your business to the next level.
No matter where you are at now, being able to budget effectively is key to business success and a profitable bottom line.
8 tips to help make budgeting and forecasting easier
- Know ALL your expenses
With a simple spreadsheet or an export of your bank account debits, you can start to list all your expenses.
Make sure you note ALL your expenses. The big. The small. The new laptop and the coffee from the meeting.
There will probably be parts of your business that will be repetitive. Many regular costs will be the same amount at the same time each month so you night like to list and review these first and begin adding them to your forecast.
2. List all your income
Now gather all your business’s income sources:
- Consulting fees
Ideally, you’ll be able to tally income from over the previous 12 months or as far back as is possible - the longer you’ve been in business, the more you have to look back over, and the easier it is for you to start identifying trends and patterns.
But even if your business is fresh, you can still make some decent estimations.
3. Measure payment terms and costs
When do you actually get paid for your goods or services?
And when do you pay for the goods or services you need to run your business?
Do they match?
Estimating your cash flows is important in creating a small business budget because cash is the lifeblood of every business.
4. Understand when your busy or quiet times of the year can be
If you have been in business for a while, you will have an idea of typical strong months vs weak months over the course of a year.
For a startup with less data, this is more difficult. Ensure you make a prediction about which months you feel will be the strongest (and why) as part of your assumptions.
It is important to know that cash in and cash out will vary month to month.
Do you know if you can service all your financial responsibilities even during a quiet month revenue wise
5. Be clear on your risks and uncertainties
Good forecasting is about embracing the knowledge that your forecasts can be inaccurate, as you can never predict with 100% certainty what will happen over a year in business.
You cannot plan for all eventualities, but it would be advisable to evaluate the impact that external factors could have on your budget. Identifying these unknown areas now will help you be prepared in the future for whichever outcome becomes reality.
6. Consider other financial reports
Your profit & loss report can give you a good picture of your performance and whether your business model is working or not.
And your balance sheet statement can map out all the value in your business. It highlights all the amounts owed to the business or that the business owes. This helps you spot problems or risks and forecast the actions you’ll take to fix them. You wouldn’t be able to see these just on a cash flow statement though.
Consider all your financial reports and how they can work together to tell the complete financial story of your business.
7. Seek feedback from others in your team
It’s a good idea to share the budget draft with your team and ask for feedback.
After feedback, address any reservations from a team member or reconcile the draft for any changes suggested by team members.
8. Adapt your budgets regularly
Review your budget regularly – at least once a quarter.
You made decisions based on a forecast, are they still valid?
You must continually evaluate your assumptions to ensure they are accurate.
Review any unforeseen expenses, payment delays, or other issues that may have affected your budget.
Get ready to prepare your budget
Small business budgeting is crucial to the success of your business. Without a business budget, you cannot track where, when, and what to spend. Cash flow shortage and low financing are some of the biggest reasons businesses fail.
Are you ready to start your budget?
Get in touch with us with no obligation FREE consultation
OR CALL +61 8 9300 9665
The Profacc team has experienced business accountants that understand the complexities of running a business. We take time to understand the dynamics of your specific business, your goals and strategic direction and enable you to achieve success.