A budget is an important tool for any ambitious business. It is the closest a business owner can get to a crystal ball and will answer these two, vital questions.
- What will next year look like for us?
- How will we get there?
Budgeting is an art, however. Too ambitious and you’ll give up before you get started. Not ambitious enough and you’ll underperform. Too broad and you’ll have no way to get there. Too detailed and you’ll get lost in the weeds.
I spent 15 years working for complex multinationals building budgets from the ground up, helping them set strong targets, and working with leaders to ensure they met them. Here are my top tips on how you can build your 2022 budget.
Budgeting is a time-consuming activity, so make sure you build something that will be a challenge to achieve. Think ahead to what you will feel in 12 months’ time if you’ve achieved it, or improved on it. Will you feel elated? Not bothered? Or exhausted?
I have always said a good budget is challenging, yet achievable. Simply put, if your budget is an outright fantasy, you will give up before you’ve even started. Likewise, if it’s too easy, you will simply underperform.
Break it down, then build it up again
With those headline challenges set in your head, now’s the time to build it out.
if you said you wanted to increase sales by 10%, how many sales does that require? How many leads? How much investment in marketing? If you said you want to reduce your overheads by 5%, where will you cut costs?
Go into some depth, look at your products and services and give each of these a separate line. For you, it could be separate projects or it might be differentiating a boiler service from a gas-safe certificate. Tailor it to your business.
Once you’ve gone into the detail, you’ll need to step back and see – can you achieve the challenge you’ve set yourself?
Build something flexible that you can alter easily
Budgets are never finalised on the first cut. They need tweaking, adjusting, and altering as you get more and more information on parts of it.
Having a tool where you can adjust your assumptions quickly and see the impacts immediately is the key. Here, I have to point to my friend the spreadsheet here. I’ve spoken strongly about how spreadsheets should never run your business, but for ad hoc analysis, particularly building a budget, they are the most powerful, customisable tool you can use today.
The professionals here will build the budget as if it were a machine, taking in inputs (prices, customer numbers, salaries) and pumping out outputs (your budget). You can tweak the inputs, to change the output easily this way.
Consult your team
If you have a team, an accountant, a coach, or even a family who helps you run your business, consult with them!
If you are going to complete 10 jobs a day, check-in with the engineer who’s going to those sites – is it feasible, or do you need more staff?
Be mindful of getting too many opinions; too many cooks spoil the broth, as they say. But getting on board a few, highly trusted people to cast an eye on your proposals could give you valuable insights.
A good budget is nothing without active monitoring. Using a tool such as QuickBooks, you can actually create budgets and compare your monthly results against them.
Review your results regularly. Add comments and learn from the variances you see.
Has something changed mid-year? Maybe a new big contract or your overheads have doubled. If you have time, forecasting is a worthwhile exercise to conduct and means you can take a view as to how you have performed and look at ways to tweak things if they’re maybe not on track.
Best of all, use this knowledge to go again and build your 2023 budget.
Building budgets take time and effort. And rightfully so; you are building a whole year of accounts! Investing the time, getting behind a budget you value, and monitoring against is a valuable exercise. Everyone can build a basic budget for their business, but there are many other factors, such as working out National Insurance or Tax, or thinking about cash flow, where sometimes having an expert on hand can save you an awful lot of time and get you a much more accurate result.
if you would like help building a budget for your business, get in touch today.