Budgets for your Business…
Budgets can be key to the success (or otherwise!) of a business.
Given the upheaval that so many have been through over too many months, getting a strong budget together could be a really smart thing to do.
Isn’t it really hard to do though?
A Budget should prove that your plans and goals for the business will work. It could be that you want simply to know that you can cover all of your costs and break even for the next six months.
Coming out of Coronavirus, or any other challenging time is going to be unpredictable. It’s really hard to forecast and it’s really hard to say what’s going to happen.
For the record, most Budgets, once set up, are changed later. When reality sets in, there will be changes and tweaks, so don’t avoid setting up a budget for fear of it being ‘wrong’. Its a process that evolves as you go, so jump in and shout if you need to!
In all honesty, it CAN be really complicated if you let it, but it should be a fairly simple process!
Watch this first!
In this video we’ll take you through everything, including:
- Where on earth to start!
- What to consider.
- What to do once you’ve got a budget together.
- What to do if things change.
- How to get the best results from your budget.
- Why it makes sense to get your budget into your bookkeeping system.
As with all of our Rebound Resources, it’s designed to help your business rebound as quickly as possible!
(Filmed during the first Lockdown, this content is equally relevant to any business facing economic uncertainty or a challenging market.)
So, where do you start?
Look at the business as it was as we went into Lockdown, and where it is now, as we come out. Or you could look at where it was at the end of the last year, or the last six months, if you feel that’s more relevant.
Make sure you understand exactly how it was working, and how it may need to work for the immediate and longer term futures.
- Is your spending all necessary? Can you trim any? Where might it need to increase over time?
- Where were /are your leads coming from? How much would your costs increase if you wanted to increase the number or quality of those leads?
- What other associated costs will rise if sales increase?
- Where is the capacity of the business limited? What about your team, what capacity does each person have, and where are there gaps?
- How challenging would it be to increase capacity across the areas you’ve identified as limited? How could you overcome those challenges? Consider how flexible or skilled that extra capacity may need to be, or could be if you outsourced, or used temporary / casual staff.
- What is unique about your offer? Think about speed, service, your package, experience and quality as well as price.
Top-down, or bottom-up?
The two types of budget have different benefits. Your business may be best suited to one or the other, though our recommendation would be to sense check either with the other!
Given the complications of Coronavirus, it may well be better to work on a Bottom-up budget to start with, then sense check it by working top-down.
This will give you some clarity and peace of mind that you’re going to manage the immediate future. This should cover the next three months as a minimum.
Our advice is to produce TWO budgets at this point.
Budget 1 – A worst case ‘Survival Budget’.
With costs cut as low as possible, and sales estimated on a ‘worst-case’ scenario, this will tell you what your absolute minimum performance needs to be. Is the business viable?
Knowing what these ‘worst case’ numbers look like actually can be a good thing.
It could very well stop you worrying at 3am; you’ll have looked into the worst case, and know what that looks like, so you can plan to avoid it.
This budget should cover the next three months as a minimum. The goal here is to take account of any reluctance people may have in spending with you at the moment, and any restrictions on your business caused by major events, economic uncertainty, supplier shortages or similar.
Your starting point here would usually be last year’s numbers, but with realistic estimates for the adjustments mentioned above.
If the end result is daunting, or downright scary, do get in touch. We can sense-check your figures and hopefully reduce the ‘fear factor’ a little!
Budget 2 – The ‘Realistic’ Budget – What you’d like to achieve.
- What if things aren’t actually as bad as they could be?
- What if you’re able to generate more sales and get more leads?
- What if you can reduce your overheads but increase the profitability of those sales?
- What if you can take advantage of pent-up demand, or people who’ve actually got more disposable income and want to spend it?
- As above, Quarter 1 should be your focus, with the next three an outline that you’ll ‘firm-up’ in two months time, when you can start to get a clearer idea of where we are, and how Quarter 1 is going. Diarise the time to do this now!
In both cases, remember to factor in:
- Any CBILS or BBLS borrowings.
- Corporation Tax or PAYE payments.
- Any potential redundancy costs.
- Additional overheads.
- Any reduced capacity as a result of social distancing or seasonality.
- Potentially longer payment cycles or higher costs you may face.
- A lengthened pipeline as decision makers are likely to be more considered between seeking a quote and agreeing to work.
Reporting against Budget
The video explains most of this and why it’s so important.
The most important point to note is that getting the information into your bookkeeping system makes your life SO much easier, and the process takes just a few minutes to do.
As soon as you can report against budget, you have so much more information as a business owner – it could be transformational for your business in the next six months!
You will be able to quickly and easily see how every area of the business is performing and make decisions around targets behaviours and activities as a result.
You’ll also be able to see where this attention needs to be focussed quickly and easily.
Budgets are a feedback mechanism which help you understand and predict how the business is performing and what results you will see in the future. Spending some time on that right now is a very sensible step.
Your ‘Quick Win’ option:
- Take last years’ Profit and Loss report from your bookkeeping system.
- Strip out any unnecessary costs.
- Adjust your income to take account of current challenges or improvements to date.
- Upload the resulting figures to your bookkeeping system.
Something is better than nothing!
As ever, if we can help at all with any of this, please do get in touch. Conversations around the process, and the specifics around your business are all included in our standard client fees, so please do take advantage of this!
If you’d like our help with designing, refining and implementing your budgets on your bookkeeping system and producing the related reports, we’ll discuss the fees to set this up and take care of it for you. As ever, there’ll be NO unexpected bills or nasty surprises along the way.
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