Whether you like it or not, the budget is something that must be done on a yearly, if not ongoing, basis. If you’re not in finance, budgeting is going to be the last thing on your mind, but it is essential that everyone contributes in order to get the most accurate and clearest pictures of a company’s health.
First off, why do we need to budget?
Without a budget or a plan, businesses risk spending more money than it is bringing in or more than it expects to bring in. Conversely, when businesses are too conservative with their spending, they miss out on the opportunity to grow. Don’t let this happen to you! You can find a happy medium by following the budgeting basics so that your company can run efficiently.
When it comes to expenses, it is important to record every expenditure in order to figure out your R.O.I. From product development to raw materials to the marketing campaigns and customer service, there are many facets to consider when putting together and analyzing the budget.
Here are four steps to get you on track when it comes to business budgeting.
1. Compare yourself against industry standards
While every company is unique, it can be helpful to compare yours against others in the same industry. When you are in the planning stages of your budget, doing a bit of research on your competitors help you come up with a base line. You can find this information in annual reports or from the company website. If your actuals are better than the average, you know you’re on the right track!
2. Consider a budgeting solution
A budgeting or corporate performance management solution can not only help you manage the budgeting process, it will help you forecast, analyze and report on it as well. You should be able to pull all your data from any location, see all your data in one place, forecasts and make it easy for all users to input their numbers, just to name a few. There are plenty of budgeting solutions available on the market today, with True Sky being one of them.
3. Factor in slack
Many companies are so focused on the bottom line and achieving a specific net profit margin that they underestimate the expenses that it takes to get there. By creating realistic forecasts and then building in slack, you can account for any unforeseen circumstances that may arise. If every expense lines up according to your forecast, then you’ll get to enjoy even higher profits than expected. The key thing here is to overestimate your expenses rather than underestimate!
4. Review the budget periodically
Traditionally, budgets are done on an annual basis. For some companies, this can work, but for others, the budget may require more frequent attention. There are a number of reasons why the budget should be adjusted, changing markets or the company has an influx of cash it wants to invest. Staying mindful of this and maintaining flexibility in the budget, will help to propel the company forward and set it on the path for success.
Budgeting is essential for any business looking to effectively plan and forecast. The goal is to create a healthy balance between earnings and expenses, while also remembering to invest and grow.
If you are interested in learning more about how True Sky can help you, contact us today.