Budgeting and forecasting are important parts of your business planning. It creates a roadmap for the business, helping you to understand the costs involved in achieving your goals. If you don’t budget forecast, your expenses could easily escalate, leaving you with little, or no profit.
As in life, things don’t always go according to plan. Businesses are increasingly finding it difficult to budget in this economic climate. Rising utility costs, inflation and a General Election have also had an impact on budgets, with many business owners realising they have under-budgeted.
What many don’t realise is that budgets aren’t set in stone. In fact, they shouldn’t be seen as an admin task – something you complete and then file away until the end of the year. You should be regularly reviewing your budget against actual costs to sense check if your budget is on track or needs to be re-forecast.
With that in mind, we’ve pulled together some top tips to help you effectively forecast your budget.
- The best place to start – look at last year’s performance.
The best way to know where you are going is to look at where you have been. Analyse what you spent in the previous year, and if possible, go back further to look at how those costs had risen compared to the year before that. We recommend you use the reports in your accounting software. There is usually a pre-defined report for you to access at the click of a button.
- Be as detailed as you can – break down costs into relevant sections.
It might feel like more work initially, but it will give you greater insights into your expenditure. The template reports in your accountancy software will already have detailed categories for you to use as a guide.
- Record costs accurately for the best insights.
Your accountancy software will make automatic suggestions but it’s important to check they are correct. Good quality data will help you to accurately forecast in the future.
- Review your budget regularly to help keep on track.
If you can, review your forecast and actual spend each month. If that’s too much, review on a quarterly basis. Some companies have their accountant produce management reports on a monthly basis, which will include a budget review. If you’re aware that costs are escalating rapidly, it’s best to keep a closer eye and monitor spend frequently, re-forecasting as necessary.
- It’s acceptable to re-forecast – don’t be afraid to do it.
We’ve seen some significant changes in the economy over recent years, all of which have had an impact on business costs. Ignoring the changes won’t help you further down the line. Address them as soon as you can to maintain an accurate forecast for the business.
How effective is your budget?
If you’ve experienced under-budgeting, you’ll understand the impact it can have on your business finances. It can also knock your confidence in being able to accurately forecast in the future.
At Accounting Clarkes, we help businesses to understand their numbers better and to create robust and accurate forecasts. If you’d like a helping hand when it comes to budgets, get in touch with our helpful and supportive team. Call 01252 612484.
