Use your Budget Better – Improve your Profits!
Rescue your budget from out of the bottom draw, give it an overhaul, and then actively use it to inform your decisions and boost your business.
A budget is a listing of what you intend to earn and spend, usually during the next year, split into months – it outlines what you want to get done in your business in monetary terms.
The last few posts have focused on how to pull your budget together, but a budget, as with any report, is only useful if it improves decision making.
* How to Start a Budget and why Bother
* How to Build a Budget (and improve your profits)
The process so far created a simple budget, to recap:
- STEP 1 Gather your Budgeting Calculating Ingredients
- STEP 2 Write down your Future Plans
- STEP 3 Sort out your Future Plans into Budget Headings
- STEP 4 Apply the dollars to your Budget Headings
- STEP 5 Do a Profitability Check
A Forecast is a reflection of how your business is expected to track, based on what you have done to date, what you said you were going to do (your budget), and therefore what is left to get done.
Budgets are often tied to forecasts, and are in-fact most useful when they are “rolling”.
In large corporations budgets are used as a way of allocating resources, checking on management and locking down shareholder returns – sticking to them is therefore critical. Budgets therefore become a force majeure and meeting the budget an essential performance requirement. Forecasting is used as an additional way of enforcing and predicating behaviours.
HOWEVER – in small business you can spend forever predicting, adjusting and messing about at the expense of earning money!
So, A combination-document of forecast and budget is what we recommend.
Use your Budget better by taking more relaxed approach to budgeting whilst still keeping current, and your eyes on the ball….
This way you only spend a little bit of time each month on the admin, but everyone still has a CURRENT road-map to work with. The steps below minimise your efforts and maximise your profit…
A Rolling Budget is when you set your budget at the beginning of the year, track your progress for what you have achieved and then adjusts it to create a forecast of what you still intend to achieve – it enables you to continually plan 12 months in advance, rather than creating a forced horizon at a specified year end date (eg 30 June).
Think of your NaviMan (that thing in the car that shouts directions at you)
- Your budget is the calculated path based on the destination you plug in at the beginning
- The forecast varies from a budget as you hit road-works, take alternative routs etc – the voice yells “ RECALCULATING RECALCULATING” is forecasting your path and time of arrival based on the events that have happened and predicting your early or late arrival.
Got your budget all set-up and finished?
BUT many people (if not most) complete their budget then stuff it in the bottom draw (budgeting pitfall number 4). This article has 8 tips to make your budget work to improve your profit all year long.