7 ways to review the financial budget of your business
All businesses need to budget, but this should not be a one-off, static process. Effective budgets require regular reviews, and a budget that is up to date allows you to manage your cash flow and to identify what needs doing in the next budgeting period.
What are the key things to consider in keeping your budget on track?
1. Income and expenditure
The most crucial element of any budget is your income and expenditure. You should compare your actual revenue against your forecasts and analyse the reasons for any shortfalls or unexpected increases. In addition to the amounts, you should also review timings to make sure that cash is coming into the business on time.
You should also look closely at your expenditure. Ask yourself:
- Are your fixed costs in line with your budget?
- Are your variable costs consistent with your sales volume?
- Have you taken account of increases in expenses such as rent and energy bills?
It is essential to look at the timing of payments and check them against your supplier’s terms.
2. Sales targets
It can be tempting to consider budgets as a purely financial issue, but of course, they ultimately impact on all aspects of the business. The most important factor is your sales. Whether you are dealing in physical goods or perhaps services, sales determine your income.
If you are not meeting your sales targets, then you need to look at why:
- Do you need more stock?
- Do you have old stock that isn’t moving?
- Do you have a marketing plan, and is it working?
- Does your pricing policy need to be reviewed?
3. Staff costs
For most businesses, one of the highest costs they face is staff. People are a vital asset, but they are also an expensive one. There is a whole raft of things to consider here:
- Are you paying your staff the correct salary?
- What are the costs of training new staff?
- Are you paying other benefits as well as salaries?
- Can part-time workers fill specific roles?
- How productive is your workforce and could this be improved?
- Can you make savings by introducing flexible working or allowing some employees to work from home?
4. Employment costs
In addition to the costs of employing staff, such as salaries and pensions, there are other factors to consider too. If you have taken on more people, this may well lead to additional expenditure elsewhere, for example:
- Will you need more office space?
- Will you need additional computers or desks?
- Will you need extra phone lines?
- Will there be an increased cost of supplies such as paper?
5. Service costs
You also need to consider the services that your business is using. Services can encompass a broad range, but some common areas to consider are:
- Advertising costs – particularly if you are launching a new product.
- Training costs – do you need to bring your people up to date with new technology or legislative changes?
- Travel costs – do you need to send people to attend conferences or events, do you have staff that need to travel as part of their job?
6. Building costs
Do you own your premises or rent them? If you rent, then have you taken account of any increases that may occur? If you own your office, then have you factored in costs such as maintenance? You also need to look at energy costs, phone bills, insurance, business rates and more besides.
Contracts will cover many of these costs, so it’s worth looking at the terms and determining whether there is any scope to renegotiate or switch suppliers to bring down the prices.
7. Considering outsourcing
Modern business is often complicated. Whatever your core business may be, you will find yourself dealing with areas including accountancy, IT, telecoms, vehicle management and more.
One way of taking control over your budget and helping to free up more time to devote to your core activities is to consider outsourcing some of these services to specialists. Consider the following points:
- Will it save you money?
- Will it deliver an improved service?
- How much control will you retain?
- Read the service level agreement carefully!
Reviewing your budget is all about making sure that your small business accounts are in good shape. That may involve questioning some of your assumptions about the business and the way it works. It may seem painful at the time, but ultimately conducting regular reviews can help you build a more effective and profitable company.