The importance of budgeting cannot be overstressed. Having one, and a good one, can help your business grow and keep it in line with your strategy. Budgeting season is here and it’s never too early to start planning.
If you incorporate these 5 budgeting tips used by successful companies you can rest assure that your business is on track to a great year ahead.
Set realistic budgeting expectations
If you don’t plan on making any significant changes to your business, don’t budget for higher sales. But if you do want to include increased revenue in your budget to give you some room to grow and experiment, justify your expected growth with a strategy and action plan. Overestimating sales can lead to increased expenses you won’t be able to pay for.
Separate fixed and variable expenses in budgeting
Fixed costs don’t change with a change in sales, but variables costs do. They include direct material, labour costs and sales commissions – all of these are things that increase with an increase in sales. So, if you do expect your revenue to go up in the next fiscal year, increase variable costs accordingly when budgeting. Fixed costs include utilities, rent and factory overhead. They stay constant no matter any fluctuation in sales.
Categorize your budgeting expenses
Classify expenses that related to each other. For example, group together office costs, occupancy costs and personnel costs as they all contribute to running the office. Having costs that are related to each together will allow you to spot trends and patterns more easily and help you in budgeting more effectively.
Allow for contingencies
Not everything always goes according to plan. That’s why you should have a plan B for everything. Include a buffer in your budget for unexpected scenarios, so just in case things do go off-track your business won’t be in total loss. Though it might still suffer a bruise, the business will survive.
Check for adequacy when budgeting
Calculate whether the expenses you’re budgeting for will be covered by sales generated. Look into your plans closely and note any additional expenses that could be incurred during a project like travel or food on a sales trip. Link your operational plans with your budget to get an estimate on how your business is growing and to keep you on top of expenses as they happen.