Benefits of budgeting and forecasting

As a business owner, there are many hats to be worn, jobs to be done and things happening behind the scenes. A successful business is one that is prepared, planned and organised; making every single dollar count! Sure, you may think to yourself “that is a lot of work”, but it doesn’t have to be! Budgeting and forecasting are great tools to identify where your money goes each month, highlighting opportunities for future saving and growth!

Budgeting for small business

A budget allows you, the business owner, to monitor actual results against planned expectations. A detailed budget reviews the outgoings over a particular period (i.e. the financial year). From here, you’re able to determine what is a necessary expense to achieve success, profit and ultimately, growth; what you’re potentially spending too much on, and what needs adjusting moving forward.

What is included in a budget?

A budget will differ from business to business. A simple way to identify what you should include in your budget is to analyse expenditure each month and see what is classified as a variable and invariable business expense (for example, stock is a variable expense, whilst rent is an invariable expense). Alongside these elements, consider what potentially could be added to your budget to achieve your goals (such as marketing & advertising). Some examples include:

• Marketing and advertising
• Upskilling and learning
• Payroll
• Overheads (rent, electricity, internet etc.)
• Debt repayments
• Stock
• Plant and equipment upgrades/rentals

Creating a detailed budget for your business allows you to stay on track, monitor financial performance, prepare and plan for upcoming expenses and reduce extra spending.

Budgeting Template

Expenses	Budget per month	Actual per month	+ / –
Rent	$2000	$2000	$0
Wages	$16,000	$16,000	$0
Office equipment	$800	$760	-$40
Website improvements	$4,000 (one-off)	$4,500	+$500
Continue to add Your own elements
TOTAL	$22,800	$23,260	+$460

You can take the above framework and use it for other facets of your business too!

PRO TIP: Create a budget for income as well as expenses to monitor both your monthly incomings and outgoings. Once done, create an overall budget for profit (incomings – outgoings = profit). Monitoring your profit levels each month allows you to track your profitability and adjust business processes accordingly to achieve your desired goals.

Forecasting for small business

Now we know that no business has a crystal ball, but forecasting future expenses, challenges and improvements will help you to manage business finances each month, regardless of what lies on the horizon.

Here are some examples of areas to consider when forecasting for your business:

• Seasonal sales peaks and troughs
• Monthly, quarterly, and yearly bills/expenses
• Business goals and costs incurred at growth stages
• Shipping costs associated with destination and demand
• Increased labour time associated with different projects
• The calendar of events for your business and what is required each month

Forecasting Template

January	February	March
Holiday peak sale period	Back to school, quieter period for sales	Expand to online market
Increased wages to handle demand — Approx. $3,000	Increased wages to management team for expansion strategy meetings — Approx. $1,000	Website revamp to include e-commerce functionality — Approx. $4,000
Electricity bill due — Approx. $800	Rent due — $2,000	Shipping costs for overseas stock —  Approx. $250

In conclusion…

Budgeting and forecasting are great tools to utilise within your business. However, it is important to note that without the analysis of past performance and utilisation of recent figures, your budget will not be 100% accurate. The true magic occurs when your budget takes into account the past 12 months of business performance. From here, you can minimise the fluctuation in the +/- column of your budgeting table and stay on track. This is when budgets can prove incredibly useful.

Forecasting will generally be a guesstimate, but that’s okay. The purpose of a forecast is the stay focused, organised and prepared. It may not be financially accurate, but it’s still a very helpful planning tool for small business.

Need advice or assistance when creating an accurate budget and forecast for your business? Contact us today and let us guide the way. Our knowledgeable team can provide you with a complete suite of accounting, taxation and bookkeeping solutions, helping you to understand your budget, implement a forecast and stay on track to achieving your business goals!