As a small business owner you may have never prepared a budget because it seemed a very difficult thing to do with no real value to your business.
But having a budget will allow you to focus and develop goals which will lead you to more and more success.
Preparing a budget for the first time can be a difficult task even with the help of computer programmes such as Microsoft Excel. It’s easy to get lost in the detail and never get the right perspective on your budget.
So here are three tips which will assist you in building the right context for your budgeting worksheets
TIP 1
Make sure that you have as much analysis on your sales and income as you do on your expenditure.
Many profit and loss accounts that I see have 1 line for sales and 100 lines for expenses. While it is very important to know exactly what you’re spending in your business, I believe it is equally important, if not more important, to know the detail of where you are getting your sales from.
So you may wish to break down your sales by:
a. product or product group
b. major customers
c. geographic spread
There are many ways you can do this but budgeting worksheets are incomplete if they do not include a meaningful breakdown of the sales.
TIP 2
Make sure you include figures for your working capital.
Working capital (inventory, accounts receivable and accounts payable) is an area that can often soak up cash in your business. Often this is where money is hiding in your business without you even realising it!
Many small business budgets are prepared without even thinking about the trading terms in the business and how this will affect working capital.
You may have a highly profitable business but be unable to succeed because you haven’t worked out the money tied up in funding the working capital of your business. No budget is complete without solid calculations on the levels of working capital.
TIP 3
Make sure you include Capital Spending.
Capital spending such as plant and equipment, motor vehicles, computers and furniture is sometimes left out of budgeting worksheets because the budget is confined to a simple profit and loss account.
If your budget does not include a balance sheet then you may forget about these items altogether and find you run out of money half way through the budget period.
As a business owner you likely want to grow your business which will mean investing in capital equipment. If you leave this out of your budgeting worksheets there is a major section missing from your budget.
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