Building a Budget; The First Step to Success

There is nothing like the change of the autumn leaves to getting you thinking about Halloween, pumpkin spice lattes and budgeting.  Yep, that’s right, budgeting!

Even for businesses that don’t have a Dec 31st year end, October is a great time to step back and evaluate how your budgeting process is working for you.  The calendar year is coming to a close, a new payroll year is starting shortly, and the change in seasons sets the mood for introspection and review.

“82 percent of businesses that fail do so because of cash flow problems”

Two of the most important pieces of any business, big or small, established or startup, are:

• understanding the profitability and
• when the cash is coming in the bank.

Here are a few additional articles about how cash determines which businesses succeed and which ones fail:

https://www.thebalancesmb.com/business-budget-planning-reasons-393029

https://www.businessknowhow.com/startup/succeed.htm

In the next few blog posts, we will take a look at how the typical budgeting process works and provide some tips and tricks on how to maximize the time and hard work you put into developing your budget numbers.

Here are the four steps we will review:

1. Look at the past – understand the numbers behind business performance in previous fiscal period.  Analyze the factors behind your performance. If you are a brand new entity your business plan will serve as the basis for your budget.
2. Plan the future – Use past performance to predict future performance.  Bring in any anticipated changes, additions, reductions, etc.  This is the part where you get to be creative!
3. Figure out the cash flow – Apply time frames to your budget.  Will you receive all your money in September.  Do you have to pay the majority of your bills in April?  If so, you need to have a plan in place to make sure the cash is there.
4. Review – After all that planning you need to make sure you review your budget against actual performance on a regular basis to discover any errors in your predictions or general changes in the marketplace.

Have specific question about any of these points or want help building out your budget?  Give us a call!