Building a better business budget – part 1

It’s that time of year again, where some of us are thinking beyond December 25, and what we would like to happen in our businesses during 2012. Regular readers will know that we are big on planning, for all sorts of reasons, and now is the time to make sure you are clear on your plans for the New Year.

A big part of planning is the preparation of financial budgets. At this point you may be hanging your head in despair, but please keep reading! We have some helpful tips for creating a better business budget – which will mean you sail through 2012, and this time next year you will be in a far better position to tackle 2013!

1. Know why you are creating a budget. By disciplining yourself to seriously consider your expected expenses, you are able to assess whether those expenses should be part of your business. Having decided on your expected level of expenses, you need to match the expenses with your expected revenue to see if you have enough dough left over to fund your operations and your growth plan (and hopefully a profit left over for you!).

That is the immediate benefit and reason to create a budget – knowing how much cash you’ll have available. A longer-term benefit is that a well constructed budget can aid you in making decisions on the future direction of your business.

2. Choose a sensible technique. If you are a budgeting veteran, you will no doubt have your own favourite method, and I would be the last to suggest that you need to change! However, for the newbies, there’s more than one way to skin a cat (or to create a budget).

Start with historical data – it’s always a safe bet. For many businesses that are going nowhere, this is enough! But if your plans for 2012 include taking advantage of the significant growth opportunities in CQ (for more info on that, go to http://youtu.be/_ndI9HBKUx8), you may need to seek some assistance in budgeting techniques – your accountant is a good place to start.

3. Plan your capacity accordingly. For growing businesses, capacity quickly becomes a chicken and egg situation – should we add the capacity now or wait until existing capacity is exhausted? The right answer for you will depend on the resources you have available, and your projections for the future of your business within your market.

Careful analysis of your budget will help you decide the timing of additional capacity, but this is a difficult decision, and you will rarely get it absolutely right. Having said this, your informed answer (with the help of a good budget) will be much better than a shot in the dark.

These three tips will get you off to a good start, but there’s so much more involved in budgeting. Watch this column – our article on the 20^th will have three more practical suggestions for building a better business budget.