Learn the essential steps to track your income and expenses, forecast future financial needs, and set achievable goals. This guide will empower you to make informed decisions and maintain control over your finances.
A budget shows what you plan to do with your cash over the next year.
To fully understand your business’s health, it’s essential to examine the profit and loss statement, balance sheet, cash flow forecast, and budget. These reports collectively enable you to make informed decisions and track performance.
Why have a Budget?
- Forecast sales and expenses according to monthly or quarterly variations.
- Evaluate performance over time to identify changes and patterns, allowing you to gain insights into trends and areas for improvement.
- Gain a clear understanding of your income and expenses.
- Clarify targets and goals and use the budget to help you focus and achieve those goals.
- Comparing actual figures to budgeted figures allows you to see potential problems early and plan for unexpected costs.
- A budget will help you see the big picture, stay motivated, and remain focused and driven over the long term.
Where to start
A basic budget considers known income and expenses, making assumptions about the timing of both. It is based on the cash flowing in and out of the business.
Over time, as you start to see the benefits of using a budget, your budget should evolve into a more sophisticated version that includes non-cash elements such as provisions and depreciation.
Most businesses will start with one budget but soon move to having three budgets:
- Business as usual – the next year’s budget is based on current year income and expenses, with perhaps a small adjustment for consumer price index increases.
- Worst case – budget is based on a pessimistic view of next year’s performance.
- Best case – budget is based on an optimistic view of performance over the next year.
While a budget typically covers a financial year, you can also create budgets spanning two to five years.
Once you have one budget (or more) set up, you can then run your current financial reports against the budget to see how you are tracking. This allows you to make rational business decisions in real time to adjust accordingly.
You can run your financial reports monthly and adjust your budget as needed.
Now is a great time to put a budget into place for the coming financial year.
Book a time with us to help you create a meaningful budget in your accounting software so that you can use it as a proactive part of your business management, strategy, and success.
About Pathfinder Solutions
Pathfinder Solutions advisory team members have either owned or managed businesses, or are investors themselves, so we know first-hand the challenges you face in your world.
Sure we’re Accountants, but the best solutions in business come from focusing on more than just the numbers. Our real-world business experience delivers just that.
