What is a Business Budget?
A business budget is a forward thinking income and spending plan for a set period of time. Used correctly a business budget is an actionable financial plan, useful for evaluating your businesses performance on an ongoing basis and helping you to achieve your short and long term business goals.
The Importance of a Business Budget
When you are self employed or are starting a new business on a shoestring budget putting together a business budget will help you to:
- Plan and control your day to day spending;
- Avoid you shooting from the hip when it comes to unplanned costs;
- Work out if you can pay yourself and your tax bill;
- Remove the guess work from day to day decision making;
- Know your break even number;
- If you are starting out, help you to calculate your start up capital.
By creating a realistic business budget you can focus on making the right day to day decisions in your business, using your business budget as your checkpoint for your decision making.
Monitoring Your Performance
Creating a business budget is the first step in taking financial control. The next really important step is to monitor your actual performance against your business budget. Generally in business this is carried out once a month, reviewing the previous month performance as well as financial year to date. So, for example, in early July typically businesses review results from the start of their financial year up to the end of June.
Monitoring your businesses actual performance against business budget (variance analysis) gives insight into:
- the accuracy of the business budget and whether this needs updating;
- alerts you to any unexpected spending;
- highlights where income is behind expectations set out in the business budget;