‘Prepare a cash flow forecast’ has been on the to-do list of one of my clients for ages! Finally, she’s done it and I can tell that she feels great for having completed it. She now understands how powerful a business tool it is in budgeting for the year ahead.
Hi, I’m Anna Goodwin – Author of five books, Director, Mentor and Trainer for Anna Goodwin Accountancy. Basically, I take the stress out of finances – both business and personal. From running my own business and helping others to run theirs, I know how important it is to understand and use your numbers.
Over the year I have felt a lot of resistance towards budgeting. Many people say they can’t budget this year as they have no idea of their income, especially as they don’t know what is happening from one week to the next. This is frequently a reason not to budget in a normal year, but in reality, unless this is the first year of trading, you should have an idea of your income – yes, even in 2020! Otherwise, how can you run your business successfully? In fact, the challenges most of us have faced in 2020 mean that budgeting effectively is even more important.
Plenty of people prepare a budget regularly and are well aware of how powerful it is as a tool to manage their business.
My book, ‘Your Business Your Numbers’ (p.73) has a list the excuses I have come across for people not preparing a budget:
- It’s too depressing
- What’s the point?
- Don’t have the time
- Don’t know where to start
- I know the expenditure but can’t predict the income
But irrespective of any resistance you may have, you need to take control and learn not only how to budget, but also how to stick to it! This goes for personal finances as well as within your business. The steps to prepare a budget are the same for you as an individual as they are for a business owner.
Here are some tips from my online course – Mastering your Personal Finance – Budgeting
- Use last year’s figures as a guide but take account of any sales campaigns you are planning this year which will impact on the figures, and also any impact from Lockdown measures
- Create realistic budgets – don’t overestimate income or underestimate costs
- Monitor the key drivers of your business – such as sales, costs and working capital
- Involve the right people – don’t work on the budget in isolation; ask staff with financial responsibilities to provide you with estimates of figures for your budget, e.g. Sales targets, production costs
- Review regularly
And one from my latest book, ‘Your Business Your Numbers’:
- Use your figures to prepare your budget for success (if you have the book, use the table on p.76)
Budgeting In Times Of Uncertainty
There is even more uncertainty than normal, so it’s a good idea to break your annual budget down into quarters. The performance can then be reviewed at the end of each quarter and any problems can be addressed more quickly. The results at the end of each quarter can be used to firm up the numbers for the next quarter.
For personal budgets:
- Gather all of your income documentation together
- Gather all of your expenditure information together
- Enter the figures in a budget
- Stick to the budget
- Compare the actual income and expenditure with the budget and look at any differences
Visit my site to download my free 11 step action plan. This works for both your personal and business budgets.
Imagine how it would feel if you could crack your budget over Christmas and stick to it throughout 2021! Fight any resistance and give it a go!
Next week will be about how to plan to make your business more attractive.