Budgeting – Page 2 – Beck & Company

Effective Budgeting Tips for the Small Business

As we near the end of the financial year and begin closing out 2013’s books, it’s important to start thinking about next year’s financial situation. For small businesses in particular, reviewing this year’s financial situation and projecting next year’s is crucial to success; however, many businesses enter the new year grasping last year’s budget hoping it will be enough to get them through the year successfully. Instead of planning for the new challenges and situations ahead, they rely on what “worked” for them in the past.

This is a recipe for failure.

Effective budgeting requires planning, often yearly and monthly. If you are not looking ahead and actively anticipating costs, then your budget is not preparing you for success. Here are a few crucial tips to help you develop an effective budget so your business can succeed in 2014 and beyond:

Take the timing of payments and expenses into account.
Many small business owners make the mistake of averaging yearly incomes and expenses and allocating that amount for every month in the year. While this may seem like a good practice in theory, reality is that your business is probably not be bringing in the specified amount of income every month. You need to take into account the timing of your payments and bills. If you make the majority of your money during peak seasons, make sure that your budget reflects this. If some of your expenses are only annually or quarterly, your budget will need to reflect that as well. Dividing the sum over 12 months is not a realistic – or effective – budget, and it can lead to some serious cash flow errors. Effective budgeting involves projecting each month’s income and expenses so you have a better idea of what you are facing every month.
Review last year’s numbers.
Before you start planning for next year’s budget, you need to thoroughly evaluate this last year’s budget. Make sure that your employees and business partners have taken a look at last year’s capital and rate of returns, as well as your business’ expenses. Brainstorm ways to cut costs in the coming year and anticipate changes, such as the need to purchase new software or hire additional employees.
Run periodic budget comparison reports.
An important part of effective budgeting involves comparing your budget to your business’ actuals. We suggest performing a monthly, quarterly and yearly budget comparison in which you compare your budget with the actual amounts earned and expenses incurred in the specified time frame. This will help you determine the changes you need to grow your business, as well as provide you with some insight into your business’ current financial situation. If you are not running periodic budget comparison reports, your budget is ineffective. Don’t let your budget be something you look at once at the beginning of the year; make sure that it plays an active role in your business and business decisions.
Reevaluate your technology purchasing plans.
Investing in new technology is usually a good idea. New technology solutions, such as Peachtree, Sage software or Microsoft Dynamics, often save small businesses a significant amount of money and time, as well as help them improve efficiency and employee productivity. Investing in too much technology, however, can be detrimental to your business. Before you invest in yet another technology, take a look at your budget. An effective budget will give you a realistic picture of your company’s financial situation and help you determine if that purchase is a “smart” investment.If, in fact, you do have room in your budget to justify the purchase, make sure that you have thought through the alternatives before you add the technology purchase to your budget. Is there a cheaper alternative? Is there a more affordable way to accomplish the same task? How have you been able to get along without the technology this far? Is it really necessary? Answering these questions will help you determine whether or not your company should make the investment.

Effective budgeting requires extensive planning and realistic oversight. If your budget is not realistic, it is not going to do your company any good. For more effective budgeting tips, stay tuned to our blog.

5 Tips for Effective Business Budgeting

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.

How to Introduce a New Financial Budget to Your Company

Budgeting is crucial to the success of your business or nonprofit organization. As we have already discussed extensively on this blog, budgeting can improve your business’ efficiency and help you make smart decisions in regards to your company’s finances. Re-evaluating your company’s financial budget periodically is essential, for your company’s financial situation is always changing. Make it a point to re-evaluate the company financial budget at least once a year to make sure that your budget is still working. If you need to make adjustments or craft an entirely new budget, do so.

Once you re-evaluate your company’s financial budget, you will need to introduce the new financial budget to your employees. The new budget will most likely have an impact on how employee projects progress, so employees will need to be informed of the new budget before it is put into place. It is also a good idea to share the new budget with your employees simply so they have a better idea of your company’s financial standing and can make more informed decisions.

Prior to announcing the new budget, consider the information you’d like to receive and make a list of the people you’d like to receive it. If you make this a standardized process, all of your employees will be on the same page and you won’t have to worry about anyone being misinformed.

Identify the employees to receive the new budget information. If there are employees on different levels, decide if certain employees (such as managers) should hear the budget announcement first. Make a list of who will receive the budget announcement and when, and announce the new budget accordingly.
Write up an overview of the new budget. In your budget overview, highlight any major changes from the previous budget. This will give your employees an idea of the numbers without having to wade through the entire budget.
Make a list of action items the employees will need to perform based on the new budget announcement. If certain areas of the budget are being cut, make sure that your managers are made aware of the cut so they can determine how to account for the decrease in funding. By providing your employees with a list of action items to be performed, you are preparing them for success.
Create an information packet for each employee detailing the new budget. This should include your budget overview, the action item list, and the budget itself. If the information varies between departments or employees, make sure that you mark each packet accordingly so the employees receive the right information.
Send out an email letting your employees know that a new budget has been prepared. In the email, announce the date that the new budget will be released.
Set a time and date for a meeting to discuss the new budget with your employees. This will give your employees an opportunity to ask questions about the new budget and how it pertains to them. If you need to hold several meetings with various departments or teams, schedule them accordingly.

Keeping your employees in the loop is crucial to the success of your new financial budget. For more information about re-evaluating your company’s financial budget and rolling out your new strategies, click here. As always, contact us for any budgeting and financial questions. Our CPAs and business advisors would be more than happy to guide you toward financial success.

Why It’s Necessary to Re-evaluate Your Nonprofit Budget Once a Year

As we have already discussed extensively on our blog, creating your nonprofit budget is an important factor in managing your organization’s finances. Without the proper nonprofit budget in place, you have no idea what programs you can spend money on, where to allocate your funds, and how to plan for the upcoming year. A budget gives your organization the clarity it needs to run to the best of its ability.

Nonprofit budgets – like many other business processes – need to be tuned up every so often to remain effective. If you feel that your nonprofit budget is no longer driving results, it could be time to re-evaluate your current budget and make some changes. Nonprofit organizations should plan on re-evaluating their budgets at least once a year.

When you sit down to re-evaluate your nonprofit budget, keep the following four questions in mind as you are developing a new budget for the year:

Do the key people (non-financial) within your organization have access to the budget and other financial tools/reports?
The people in your nonprofit organization who will use your budget the most are those who are not in financial roles. Project managers, non-financial managers, department heads and senior management will all need access to your organization’s budgets and financial reports. These are the people who will be actively making decisions that will directly impact your organization’s resources. Providing them with budget reports that are easy to comprehend and helpful for measuring results will prove to be an invaluable resource to them.Ask around your staff to see if these key people are connecting with the budget. Observe how they interact with the budget reports and how they use the information for their area of the organization. Are they even looking at the budget reports? If so, are the reports useful? Or could they derive more out of the reports?Taking an honest assessment of your organization and how key people interact with and use the budget is crucial to your organization’s success.
Are your non-financial managers taking ownership for their part of the budget?
Convincing your non-financial managers to take ownership for their part of the budget is no small feat. Start by involving them directly in the budget-making process. If they fell a part of the process from the start, they will be more likely to take an interest in sustain the budgeting efforts.Also ensure that their project management tasks are integrated with the budgeting system in some way so they can get used to comparing the program metrics with the financial metrics. No program can be evaluated by its program results alone, nor can it be judged solely on its financial results. To gain a true picture of your programs’ effectiveness, your managers need to be aware of both the financial and program impacts.
Is your budget being put to use across all areas of your organization?
This question is pretty self-explanatory. In order for your budget to work, all areas of your organization need to be actively involved in the process. They must have the right tools and reports (see Question 1) to make their decisions and have taken ownership over the budget for their area of responsibility (see Question 2).
Are your budget reports giving you an accurate view of your organization’s financial standings, effectively benchmarking results, and forcing your organization to think about the future?
Your budget reports need to be effective and concise. Your managers do not have time to sit around and analyze budget reports all day. They need to be able to look at a report, gather its information, and put that information to use in their department or area of responsibility.

Budgeting is a process that never ends. Once you’ve developed your organizational budget, you have to constantly re-evaluate it and account for upcoming program changes, funding changes, and government regulations. Budgeting isn’t just about allocating funds; it’s about examining those funds and measuring the financial effectiveness of your organization as a whole.

While nonprofit organizations can pick any time to re-evaluate their budgets, many organizations would benefit from waiting until after the Board has approved next year’s budget. This is a good time to look back over your budgeting process and assess how to make it better for the year to come.

Budgeting Strategies for Nonprofit Organizations

Budgeting, in general, can be challenging. Budgeting for nonprofits, however, can be downright frustrating without the proper tools and strategies. Nonprofits create budgets to show their donors how funds are allocated throughout the organization, make smarter financial decisions, determine if they have the necessary resources to begin new programs and, ultimately, to save money. The following strategies were developed to help nonprofit organizations maintain an effective and realistic budget.

1. Determine Your Budgeting Cycle

Most organizations have an annual budgeting cycle that consists of the Board-approved budget. Because these often have 3-4 month cycles and are rarely completed prior to the beginning of the fiscal year, many nonprofits would be better off switching to a mid-year or quarterly budget review. This frequent budget review could be either a formal or informal meeting to determine the organization’s progress as compared to the budget. If any mid-course corrections need to be made, they can be discussed and determined during this budget review.

While most companies stick to yearly budget cycles, nonprofits benefit from more frequent budgeting cycles. This gives them the opportunity to make adjustments for unexpected funds or re-evaluate the distribution of stated funds.

2. Determine the Programs and Activities to be Included in This Year’s Budget

A budget cannot be created until staff, volunteers and board members have determined the programs and activities for the upcoming year. What programs are expected or desired? If your organization needs to make some budget cuts, what programs or activities will be cut?

3. Practice Income-Based Budgeting

The most reliable budgets are those that are conservative and income-based. Nonprofit organizations should always budget for income first. Income projections should be based on realistic expectations and only include reliable income. Never include an income projection to merely fill in a gap in the budget; this will set you up for a budget deficit if your organization fails to meet the income targets. In addition, make sure that your expenses are always lower than your dependable income.

4. Budget Expenses and Revenue

This is the most time-consuming step of the budgeting process, yet it is also the most necessary. Your expenses and revenues will be based off of historical data and assumptions. The differences in previously budgeted amounts and the actual amount will factor into the current budget, as will a realistic view of the economic conditions on revenue and the demand for services.

5. Align Your Budget with Your Organization’s Mission and Goals

A nonprofit’s budget should reflect the organization’s commitment to its mission through numbers. Ask yourself the following questions to ensure that your budget is aligned with your mission and strategic goals:

Does the budget reflect the organization’s mission by the way the resources are allocated?
What types of grants are we pursuing? Are we going after grants because they are easily attainable or because they pertain to our mission?
Are all of our programs either contributing to the organization’s mission or helping to financially support the organization?

6. Invest in Budgeting Software

Finding the right solution for your organization can provide you with the tools and processes that are necessary in reaching your budgeting goals. There is a multitude of budgeting solutions to choose from, making it easier to invest in a solution that fits the needs of your specific organization. A comprehensive budgeting solution will:

Effectively align your strategy with the execution of your operations
Shorten planning cycles to allow executives to concentrate on meeting strategic goals
Free up time and money to explore new areas of growth
Deliver current and relevant information to assist with better decision making
Provide analytical capabilities
Eliminate reliance on spreadsheets and their associated errors

For more information about developing a nonprofit budgeting, click here.

Improve Efficiency by Creating an Effective Budget

Improving your small business’ efficiency involves more than simply changing a few processes and procedures; it involves knowing the ins and outs of your company and being able to account for every dollar that passes through your business. While budgeting may not be the first thing that comes to mind when you think about ways to improve your company’s efficiency, an effective budget can save you a substantial amount time and money, allowing you to focus on the areas of your business that need further improvement.

Most small businesses already have budgets in place; however, many companies are failing to take full advantage of the budgeting process. An effective budget is a life-saver for the small business, especially in uncertain financial times. An effective budget will gauge the health of your business, help you plan for future expenses and needs (such as the hiring of a new employee, new hardware or a new office space), and provide you with the necessary tools to help your company grow.

Consider the following basic budgeting tips below to learn how to transform your budget and improve the overall efficiency of your business:

1. Keep Your Accounting Records Updated

Think of your accounting system as the answer to all of your problems? Want to find out how your company faired last year? Pull a report. Need to know the amount of money you are spending on that new project? Pull a report. Do you need access to this year’s projections in order to plan out the year effectively? Pull a report.

Your accounting system contains a wealth of information designed to help you run your business smoothly and efficiently. Start by running historical reports that will show you the breakdown of your monthly and yearly costs. Use these reports to compare this year to last and get an idea of where your business is spending its money.

Make sure that you pull a break down report every month and any other necessary accounting data you may need for forecasting. This will help you gain a better idea of where your business is financially, not only month-to-month, but year-to-year.

2. Set Business Goals and Develop Realistic Strategies for Reaching These Goals

The purpose of a budget is two-fold: to gauge the financial health of a business and to help that business accomplish its goals (financial and otherwise). What are your future business goals? Prior to creating your budget, sit down with key members of your staff and discuss your company’s future. Ask yourself these questions to get a start on developing your goals: What are your sales goals for the year? What costs can be eliminated and what costs are crucial to meeting those goals? What will our marketing strategies look like each month? What is our profitability goal for the upcoming year? How can we realistically meet that goal?

In order to reach the goals your company set forth, you will need to develop realistic and quantifiable strategies. These are realistic goals that can be measured. Instead of saying “I want to increase sales this year”, set a more realistic goal, such as increasing sales by 5% in the first quarter of the year. This will help you not only create more realistic – therefore, attainable – goals, but it will also help you plan more effectively.

3. Incorporate Your Goals into Your Forecasts

Now that you have defined your goals, incorporate them into your new monthly forecast. These forecasts are based on past accounting data and future goals. Remember to adjust your initial forecast based on any irregularities of the past year. For example, if you had a slow June last year, consider revising your baseline to account for June’s irregularity.

4. Compare Your Actual Results to Your Projections Each Month

Once you have created a new forecast for each month of the year, develop a template that allows you to track the actual numbers as compared to those forecasted. Calculate the difference and percentage of variance between what you forecasted and the actual numbers for that month. This will give you a better understanding of your company’s performance, and will help you create more realistic forecasts for the months to come.

Make sure that you review your actual totals vs. your future forecasted totals each month in order to stay on track to meet your initial goals. This will allow you to make immediate and necessary adjustments in order to reach your goals.

5. Identify and Re-evaluate Cost Areas in Your Budget

After you have evaluated your company’s current financial standings and projections, you need to sit down and review the cost areas as compared to the total costs being spent. Are there areas that could use improvement? Are there cost areas that could be eliminated? Ask yourself these questions as you evaluate every area of your budget. Eliminate any unnecessary costs and adjust spending according to your budgeting goals.

As you review your various costs, re-evaluate your suppliers and service providers to ensure that you are getting the best deal possible. Ask around, and get an idea of the average price for that service. If you feel that you are being taken advantage of, look elsewhere.

For more information about creating an initial budget, read our article, “5 Tips for Effective Budgeting”.