A key element of a business plan is the financial projections. Estimating turnover is notoriously difficult for a new business, however many costs can be budgeted and the minimum level of required turnover can be established.
For existing businesses budgets are perhaps second only to accurate financial records in terms of management control. By preparing an annual budget all aspects of the business for the coming year are considered.
There are many benefits of preparing a balanced budget:
- Control and likely reduction of costs
- Consideration of purchasing requirements and suppliers
- Cash flow planning, finance needs and bank deposit planning
- Tax planning in terms of expenditure and profits
- Turnover projections and targets
- Departmental profit considerations
- Staff, equipment and premises planning
- Focus on debt collection and stock levels as applicable
The budget process does not end with the final forecast document. A properly prepared budget should link simply and easily to your financial recording system, whatever form that may take. A monthly or quarterly review can then be made to check progress against budget.
Preparing a budget becomes easier and more efficient when you have done one before. Many small businesses will benefit enormously by having some professional help when preparing a budget for the first time. A key element to any budget is ensuring that the profit and loss account, cash flow forecast and balance sheet monthly projection fit together properly – this is what is meant by a balanced budget. These three elements, typically each forming one A4 page, can be prepared in about one day.