Once your business is operational, it’s essential to plan and tightly manage its financial performance. Creating a budgeting process is the most effective way to keep your business and its finances on track.
Remember that planning and budgeting is not just an activity for big businesses. Unfortunately, many smaller businesses delay putting in place a robust plan or budget in the belief that the processes required are too difficult, or that they know enough about their business not to need one. For some, the first time a plan is pulled together is when they go looking for external finance and can’t get one without a business plan. For others, the original plans pulled together are not updated or actively used in the day to day running of the business.
To be fair, the work required to get a business moving and deal with customers and process and systems and suppliers and, and, and… can be overwhelming for a start-up business, but putting a plan and budget in place need not be as onerous as possibly thought.
The underlying principles are the same no matter what your business size.
- Be realistic, do not over-inflate sales projections or resource efficiency.
- Ensure that cash flow sits at the centre of your plans and budgets. Profit is secondary.
- Plan to pay your creditors on time. Ensure that you have the resources to survive periods of low/no cash inflow.
- Budgeting should be accurate. Ensure that the data used is correct and that any assumptions are sufficiently robust and risk-adjusted.
- You will almost never achieve your budget. It is a road map based on best efforts and should always be challenged and updated as real world events unfold.
- Communicate your budget to the entire business. Without understanding, agreement and buy-in it will be worthless.
- Having no plan is planning to fail.
This guide (click here) outlines the advantages of business planning and budgeting and explains how to go about it. It suggests action points to help you manage your business’s financial position more effectively and ensure your plans are practical.