For any business to succeed, a good understanding of financial management is required. For small to medium sized enterprises (SME) in particular, a realistic and adaptable budget should be in place. The budget would need to cover detailed information on the company’s cash flow otherwise your SME could be headed straight to failure without this knowledge of your business. Leading insolvency practitioners in the UK, Business Rescue Expert, have outlined the planning process required for your company budget, in the process highlighting just how crucial it is to the longevity of your corporation.
2016 saw over 600,000 companies incorporated in the UK, with over 4.9 million businesses in total. About a third of the abovementioned 600,000 businesses are predicted to go out of business within a period of three years, as a result of external factors which might very well be beyond the control of the company. For many however, this will merely be as a result of poor financial management.
How to create a budget
Previous turnover dating back several years would need to be analysed if yours is an established company as this data could provide some insight into when and where your company is at its most successful, at the same time highlighting the areas in which you will need to improve. Start-up SMEs and new businesses would analyse their competitor’s data, seeking to establish their place in the market, determining where they’re failing and where they’re succeeding. Filed accounts of industry competitors can be obtained at Companies House, however, broader market data could also be researched. If your start-up is operating in an entirely new industry, a data research company’s analysis is recommended for purchase, available from the likes of Plimsoll for example.
The expenses should be recorded in their entirety in the budget so as to ensure the budget produced represents your company accurately. Once-off expenses are just as important should also be included.
In particular, start-up SMEs must research all costs of all the outgoings likely to befall them. Accountants and business mentors who specialise in specific fields can be brought in, a step implemented in alongside the researching of your competitors’ data for a guide on industry standards as well as the expenses to be encountered.
Match your Headings
You can prepare your budget draft using management accountant software like some cloud-based systems including Quickbooks and Xero. Onece you’ve drafted the budget, compare it with the actual costs. This way your company will be adaptable and be in a position to respond to any market fluctuations.
Look within the business itself as one of the sources from which to seek advice. Speak with staff that holds financial responsibility within the company. Their input which draws value from their day-to-day knowledge could highlight something you may have missed.
If you’re just starting out and are not entirely sure about how to create a budget, talk to accountants, financial advisors, and industry peers for advice.
The essential process of creating a budget for your company will ultimately be an ongoing one. A thorough budget plan will provide some financial security along with handing you the opportunity to thrive in your market.