How to plan an annual budget
By Julia Keady
Contrary to the popular belief that budgets are dreary and dull things best performed by accountants, creating an annual budget can be the most rewarding part of running a business. A good annual budget can deliver peace of mind, business growth, insurance against market shocks and a truly great feeling of being the master of your universe. Budgeting can seem intimidating at first, but there are plenty of tools and guides that can help you get your game on when it comes to money.
Any good business software such as MYOB or Quickbooks will contain a pretty comprehensive suite of budgeting tools and useful tutorials. If you aren't ready to shell out for software then you can download free templates. Microsoft office provide a free Excel template and the Australian Government offers a suite of free templates, guides and apps, among many others that can be found with a quick internet search.
For now, let's get a quick overview of the essentials.
The annual profit and loss forecast
An annual P&L is the main planning document of a business budget. It's a 12-month forecast of all expenses and income estimates based on projected sales, wages, business costs, depreciation and major purchases. The beauty of an annual forecast is it can become the template for your actual end-of-year P&L by simply placing an 'actual' column beside the 'projected' column and updating it each month. By tracking the actual against the projected you can quickly discover if you need to make changes, rather than finding out about it when it's already too late.
Cash flow budget
Many 'profitable' businesses have struggled and even failed because of cash flow problems. A cash flow budget recognises that sales don't always match up to payments, which can leave businesses struggling to cover their costs. A good cash flow budget tracks this payment 'lag time' and lets you know whether you need to organise credit, chase money owed or alter your payment policy - before the crisis hits. It also means that if you do need to get a bank overdraft you have the documentation prepared that the bank will want to see.
Sales and marketing budget
A sales and marketing budget is the tool that drives your business growth. By forecasting your cost of sales, cost of marketing and projected sales growth, you can plan how to keep your business moving ahead. By reviewing it on a regular basis you can also determine if your marketing is working and whether you need to make changes.
"No battle plan survives the first engagement" is a well-known truism. No matter how good your plan, changes in market forces can quickly alter it. New technologies, the emergence of a new competitor, financial market crises and a host of other problems can bring a business unstuck out of the blue. That's where a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis can be invaluable. A thorough SWOT can help to immunise you against future problems and identify trends and opportunities that could take your business to the next level of success.
Doing an annual budget is the opportunity to get creative, take control of your business and drive your future growth. Have you done yours yet?