An Introduction to Budgeting
We are really excited to have kicked off our refreshed budgeting and forecasting service this week. Thank you to our inaugural attendees for your support! If you missed our first webinar, don’t worry! Read on for a taster of what we covered and details of how to access the next sessions.
A budget is a tool to get what you want from your business. It sets out your financial goals and an inherent action plan of how you get there. Without it we are pretty much just hoping we get the result we want. Once we can see, through our budget, a clear plan for getting what we want, anxiety and stress start to disappear, and the excitement of being in business comes to the fore. In fact we would go so far as to say, any time you feel you are losing touch with the excitement for your business, go back to your budget.
Which Budget?
It’s common for people (including business owners and accountants!) to mean different things when they talk about ‘a budget’. What people often have in mind is one of the following:
A simple calculation that shows you if in the short term you have enough money to make your key payments that are due - this is often where people start with budgeting in small business
A financial plan that outlines what income and expenses you are expecting over the next year - this is what we would recommend all organisations go on to develop, however large or small
Where to Start
There are different ways to create a plan of what you expect your income and expenses to be. One of the simplest is to look at trends in your historical financial data and apply these to your future periods. This is easy to do in the Fathom Forecasting Tool - Fathom connects directly to your data in Xero and has a ‘Smart Prediction’ function that can give you a budget in a few clicks.
Taking this as a starting point, it can then be developed using drivers. If you are a client of Co- you will have heard us talk about the importance of understanding and identifying the drivers of your business profits. Drivers are those things that you can work directly on, such as customer numbers, that will drive the financial results that you want.
You can read more about the drivers of business profit in our Five Foundations business guide at https://co-accounting.co.uk/blog/our-five-foundations-download.
A Budget is for Every Business
Every business can benefit from having a budget. Even going through the thought process of building a driver-based budget can clarify the priority focus areas and actions needed to achieve the results you want. When regularly reviewed and updated, a budget gives you a mechanism to actively manage the performance and profitability of your business. Specifically, using a budget in your business can give you:
Metrics for the business to target (we explored this in more detail at our first Co-Create Workshop: ‘The Numbers that Matter’).
A point of reference against which actual performance can be measured and a lens through which to identify actions to address underperformance, overspending, or even opportunities for growth.
A means to plan for uncertainty and risk, foresee problems and anticipate and manage potential cash flow shortages.
A source of financial information to help you make business decisions and choices, such as when and where to invest.
Co- Budgeting Service
If you don’t have a budget, or want to upgrade the budget you do have, join our next Introduction to Budgeting in Fathom webinar at 12 pm on Monday 4 March 2024. Click here to register. You can also get started with our small group or one-to-one support. Contact Stephanie for more details and prices.
One of the benefits of having your budget set up in Fathom is that we can then bring this data to your Improving the Numbers meetings. As well as looking back at what the performance of your business has been, we will be able to look forward at the performance your business could achieve - giving you an extra level of insight into your numbers.
