Now, more than ever, it’s important that you revisit your budgets and the processes to not only let your business survive but thrive, whatever the economic environment. Tough times can mean opportunity to increase market share for those that have a clear picture of their finances and cash flow. Those who wait for trading conditions to improve and continue blindly are increasing the risk of business failure substantially.

Creating a budget for a small business is an important step in ensuring the success of the business. A budget not only allows you to better understand and manage your finances, but it also sets up a roadmap for the coming year. Having a clearly defined budget can help you set realistic goals that can help keep you on track for achieving success. Here are the steps for creating a budget for your small business:

Step 1: Evaluate Your Current Financial Situation

The first step in creating a budget is to assess your business’s current financial situation. Gather together all the necessary financial documents, such as records of income, expenses, and loans. Analyse the documents to determine your current financial status in comparison to previous years or any other baseline or industry standard. This will help you create a budget that accurately reflects your business’s financial status.

Step 2: Set Goals

Once you have evaluated your current financial situation, it is important to set goals for your small business for the upcoming year. Your goals should be both realistic and achievable. The process of setting goals can be made easier if you break them down into specific objectives for each month or quarter. Having a timeline for your goals can help to ensure that your budget aligns with the business’s long-term plans.

Step 3: Create a Budget

Now that you have evaluated your current financial situation and set goals, it is time to create an actual budget. Start by creating a worksheet with all your income and expenses. Add up your monthly income and compare it to your monthly expenses. If your total income is smaller than your total expenses, it is time to determine where you can make cuts and adjust your budget accordingly. Please note that a Profit & Loss Budget can be very different from a Cash Flow Budget due to timing of payments and receipts, non-P&L items such as principal loan repayments, drawings and dividends. However, the P&L Budget is usually a starting point that will be factored into your Cash Flow Budget.

Step 4: Track and Monitor Your Expenses

Once you have created a budget, you must stay vigilant and track all expenses. This can be done through regular budget reviews. Staying on top of your expenses can help to ensure that you are staying within your budget and that every purchase is aligned with your goals. The more you know about your expenses, the easier it will be to make changes and adjustments as needed.

Conclusion

Creating a budget for your small business can be a daunting task, but it is also essential for success. By following these steps, you can create a budget that allows you to meet your goals and stay on track for the coming year.

We recommend using Three-Way Budgets as part of financial projections, business strategy and monitoring. We assist our clients to set up strong financial models and then regularly meet with them to discuss the results. Where required, we recommend adjustments to strategy along the way.

If you need assistance in this area, please contact us at Tribel Accountants and Business Advisors to discuss a solution specifically for your business needs.