As we have discussed in the past, budgeting is an important part of running a successful business. If your business is not creating and maintaining an effective business budget, than you are doing your business a disservice. Budgeting can help your business not only plan for future expenditures but also prepare your business for unexpected financial challenges. It can give you greater control over your company’s finances and help you minimize unruly business costs.
We have prepared the following 5 tips to help you gain a better understanding of what constitutes an effective business budget:
- Determine the strategic goals of the business and incorporate these goals in your business budget. Without any goals, your company has no direction and your business budget has no purpose. Before you even begin the budgeting process, you and your company’s executives need to sit down and develop several strategic goals and strategies for your business. Once you have determined your strategies and goals, you will need to translate these into specific long-term (achievable) goals, budgets, and operating plans. Make sure your goals include earnings growth, sales, cost minimization, production volume, and product or service quality.
- Prepare a budget for every major area of the business. As we stated above, you need to have long-term, achievable goals in place before you create your business budget. When you are ready to develop your budget, you will need to focus on every major area of the business. It’s also smart to prepare a budget for your business’ expected revenue, costs, profit, cash flow, and so on. This will give you more control over your company’s finances and help you measure your goals when the time comes.
- Have a company-specific budgeting process in place. It’s important that you have a specified budgeting process in place for your company. Every company has different processes and procedures, and budgeting is no exception. Make sure that the budgeting process makes sense to your company; don’t simply adapt another company’s process. What works for them may not necessarily work for you. Develop a budgeting process tailored to your company’s specific needs, and don’t spend too much time in the budgeting process.
- The budget should be reviewed by a group of people within your company. Business budgeting is not a solitary task; it involves the input and oversight of key company executives and business managers. Make sure to include department managers and executives in the budgeting process and allow them to review the budget before it is finalized.
- Develop budgets for each department. This is often an overlooked area in business budgeting; however, developing specific budgets for each department in your company is crucial. Your company’s budgets should reflect the goals and objectives of each department within the company, as well as lay out the allotted costs for the specified time-period for each department.
Budgeting for your business is an important task that should not be ignored. Budgeting will help all areas of your company prepare for success, including management, marketing, production, distribution, personnel, and facilities. By taking a little time to implement the above tips for effective business budgeting, you can transform your budgeting process and gain better control over your company’s finances. Budgeting allows you to respond more quickly to unexpected changes and aids company executives in making more informed business decisions.
If your company could use some more tips for effective business budgeting, give us a call today at (703) 834 – 0776. Our CPA’s will be more than happy to discuss your particular needs and help you determine the best course of action to take in regards to planning your company’s budget.