With Resurg Partner Sean Johns
Five Benefits to Budgeting
The same way many use January 1st to set personal resolutions, the fiscal New Year is a great opportunity to take stock of business performance and set targets that will lead to a prosperous and successful year ahead. The ideal tool for such an exercise is your 2013/14 financial year budget.
Small business owners generally spend less time looking at their p&ls and budgets compared to their corporate counterparts. One of the main reasons large corporates often require lengthy monthly reporting from their managers is to ensure they are taking the time to analyse the performance of their business and plan for the future. Taking the time to complete your budget for the next twelve months is a great way for you to ensure you are working on your business, not just in it.
Most of us are very busy with our day-to-day activities and may avoid formalised planning
unless we are made to do it (bank applications etc). If a budget is in place it allows business owners to focus on problems before they actually occur. Daily distractions are therefore reduced, because knowledge of possible problems allows you to act in advance, rather than having to ‘fire-fight’ problems as they occur throughout the year.
A good budget helps utilise your resources such as staff time and your own time in the most beneficial way for your business.
Once the budget is in place it allows you to more accurately control your expenses. Investigating variances from established targets (ie differences between actual and budgeted) and taking corrective action on a monthly basis will improve the profitability of your business and your confidence as an owner.
Your budget is a great tool to use for discussing performance and targets with key staff members as well as other key stakeholders in your business.
Not only can the process of setting and achieving targets be very motivating for yourself as a business owner but it can also be a good tool, and the base for engaging key staff and setting incentive targets that will benefit the business and the employee.
When advising our clients on budgeting we recommend the ‘Profit based’ methodology, sometimes referred to as bottom up. In other words, establish an end result that you would be happy to achieve and then build a budget that will drive business performance to produce the desired result. The benefit of this approach is that you are letting the profit result you desire dictate the rest of the budget, as opposed to starting at the top and working your way down, where the existing sales, yield and expense patterns dictate a profit result for you. Bottom up budgeting is far more likely to achieve real change in your business and help you build a business that is profitable and benchmarks well against others. A word of warning though: unrealistic budgets will not benefit your business, or motivate yourself. If your ideal result is still far from your present performance then set achievable targets that will get you