Steps to better a budget - Part 2

Preparing your annual budget is probably one of the least appealing parts of being an entrepreneur. But you don't do your business - or its customers - any favours by putting it off. Following these five simple steps can help make the process a little less painful.
 
Count Your Chickens
Before you start allocating resources, you need to understand what they are.This includes not only the amount of your income, but its nature.
 
Get With the Programme - Costs
With the input of key people in your business, determine the current costs and what your business expects to offer in the next year. Be careful not to underestimate needs. Make necessary adjustments to the previous year's expenses for inflation and other higher costs that may disproportionately affect your profitability. For example, if petrol prices are rising quickly and you rely on vehicles to deliver services, expect your expenses to be considerably higher next year.
 
Pay Attention to Other Expenses
List your direct expenses, breaking them down into specific line items. Payroll is probably the largest item. Add to current salaries any expected salary increases and payroll taxes and benefits.
 
Incorporate any legally mandated changes to benefits, such as certain changes due to current strike action. Other direct costs may include rent, e-tolls, supplies, equipment maintenance, insurance and transportation. Don't forget to account for indirect expenses as well.
 
 Play With the Numbers
What you have at this point is a rough draft. You'll need to make at least some adjustments to your numbers, assumptions and plans before getting to where you want to be. Be sure to compare your budget to last year's and to the actual results, paying attention to large variances. An unanticipated one-time event may explain going over budget. But if you don't have that excuse - and have gone over budget repeatedly - you probably need to be more realistic about your income and expenses.
 
5. Ask For Direction
Don't hesitate to get assistance if you need it. Professional accounting help is always a good idea, but it's critical when:

  • This is the first time you have prepared an annual budget
  • Your business is struggling financially
  • Your business is growing rapidly or has undergone major changes
  • Your business saw significant variances between last year's budgeted and actual results
  • You don't have financial or accounting expertise in-house

If you're uncertain, get expert advice. After all, your annual budget is the first step toward current and long-term financial stability.