Business Budgets to make decisions, intelligently.

A carefully constructed business budget allows organisations to continually track their financial position. Budgeting helps with both planning and control of the finances of the business. If there is no control over spending, you may find you are circling your business goals but not actually achieving them.

Knowing your business budget can open up the ability to hire new staff, invest in new product lines and set earning goals in line with the organisations’ strategic objectives.

A budget can help to make your business sustainable. It ensures that money is allocated to those things that support the strategic objectives of the business. A business budget can also help everyone understand the priorities of the business and restricts any spending that is not part of the plan.

By taking the time now to set a budget, you will free up time in the future and give yourself the best chance of achieving the rewards you want for your hard work.

Common business practice is to create a budget for the year and then not look at it again (until the end of the year when they are creating following years budget). Sound familiar? Because so few business owners actually make the time to review their budget over the course of the year, doing so may give you a huge advantage on your competitors. By making it a priority to do a mid-year budget review (or even better, a quarterly or monthly review) you are setting yourself and your business up for success.

Most often, difficulties are rooted in ill-conceived choices of budgeting method.

There are two common approaches:

• Base-plus: simply take the prior year’s actuals and make arbitrary adjustments. If the business is in a stable, perhaps even regulated, market, the approach has some validity. This approach makes sense for the stable components of a business (for example, lease costs), but you do need to be able to identify the stable budget lines. Looking at past results will help you assess this.
• Zero-base: For each line in the accounts, start from zero and add up everything you expect to spend against that line in the coming year. This has the benefit of making you think about what you are spending and whether it is justified. The downside is that it takes considerable time and intimate knowledge of your business.

So what are the options?

The usual compromise is to do a quick base-plus budget first but then do a zero-based review on the important lines. This focuses your effort where it will have most impact. In addition, you could improve on this process by cycling through all the accounts over a 3-5 year period.

Preparing a business budget can be complicated. Often, companies spend more time creating a budget than analysing it. By integrating the budgeting process across the organisation, it can be relatively easy to identify and eliminate mismatches.

Best-practice business budgeting requires a solution that provides:

1. flexibility to accurately model your business,
2. can cope with multiple users and
3. adapts easily to rapid change.

One advantage budgeting and forecasting software has over spreadsheet-only budgeting is the minimisation of duplicate data entry. Data is pulled from your accounting system, department budgets are automatically consolidated to the organisation budget. And there are no formulas to over-write!

Calxa can easily create profit & loss statements categorised by department. Balance sheets and cash flow statements can be created and consolidated. Finance departments can deliver polished presentation-style reports. These reports help departments track sales goals and expenses. Results can be easily incorporated into the businesses overall cash flow projection.