3 Rules For Business Budgeting for Small and Medium Businesses - Advise Accountants
12 April 2015
3 Rules For Business Budgeting for Small and Medium Businesses

It always amazes me the number of businesses that don’t have an up-to-date budget. It’s like driving a car and not having a destination in mind.

A budget gives your business financial direction. And in terms of, “You can’t control what you don’t measure,” a budget is a vital measure of your business’ success.

Here are 3 rules for your business, when it comes to budgeting…

Business Budgeting Rule No.1: Have one.

A budget tells you if you have enough money to fund operations, expand the business and generate income. Without a budget, you run the risk of:

  • spending more money than your business is taking in
  • not spending enough money to grow the business and compete.

In many ways, one of the greatest benefits of having an up-to-date business budget is peace of mind. You know whether your business is on track, and you know what you need to achieve this week and this month to keep it on track.

Business Budgeting Rule No.2: Know your break-even point.

One of the most important pieces of information you need for your business is its break-even point. This is the amount of money your business needs to make to… well, stay in business. And a budget can tell you exactly what that figure is.

You should know your weekly and monthly break-even amounts off the top of your head? Do you? If not, that’s a symptom that your business can be managed more effectively.

Business Budgeting Rule No.3: Get independent input.

When it comes to creating your budget, some parts will be easier than others. You probably won’t have any trouble figuring out your business expenses—rent costs, staff costs, etc. The hard part is identifying the potential revenue from your customers. But it’s also exciting, as it can help you identify new sales categories or opportunities to grow your business.

As a business owner, you’re often knee deep in daily operations and it’s a challenge to step back from your business to get perspective. It can be difficult to know what is a realistic revenue target? What ‘best case’ should you shoot for? What ‘worst case’ scenario should you include in your planning?

It helps to have an independent business advisor act as your sounding board and guide you in the preparation of an accurate and realistic business budget. As advisors, we see the performance of many businesses and know what growth rates are achievable.

There’s no point having a business budget that is not based firmly in reality, and we provide that independent reality check for you.

You’ll find the benefits of having a budget go much further than knowing how your business is doing financially. It can identify:

  • ways you can spend money to enhance your strategic advantage
  • costs that don’t add any real value to the business.

That last point often means that the process of preparing the business budget pays for itself up front, because unnecessary expenses in the business are identified and eliminated.

If you’d like to know more about how a business budget can help your business, or you’d like a hand creating one, get in touch and we’ll have a chat to step you through what’s involved in the process.

The next time you get in your car, I’m sure you’ll have a destination in mind. When next month arrives, will your business have that same clarity and direction?