The importance of a budget in your business

A business budget is the foundation of every business’s success. It helps with planning and control, allows you to focus on cash flow, reducing your costs, improving profits, and increasing your ROI.

Many entrepreneurs start their business with an idea, and before they know what has hit them, they are a few months down the line and still don’t have a budget sheet in place. The essential part to ensure success is always to have sight of where you are financially and plan ahead.

What is a business budget?

A detailed plan that outlines where you spend your money, be it monthly or annually.

Ideally, it would help if you allocated every rand a job. When you decide what you spend your cash on, it has value.

A budget will assist you to:

  • Forecast your expected earnings.
  • Plan where you will spend that money.
  • Allocate budget accordingly, savings, spend and profits.

What to include on your business budget sheet

  • Your estimated revenue or income from the sale of your goods and services
  • Any fixed monthly costs
  • Your variable costs
  • Any once-off costs
  • Cash Flow
  • Your profits
  • Any loans and tax implications
  • Any additional, seasonal, or opportunistic income
  • Savings, investment accounts

Of course,  nobody could have predicted the global pandemic, but the businesses with budgeted buffers and savings could survive the months of lockdown.

Companies that were living month to month, not acting fast enough to shut down expenses, or had no savings or investments, could not survive the lockdown.

What makes up a business budget?

It would be best if you were flexible. Circumstances change, so should your budget.

It also needs to be visible and apparent to all necessary parties, so you can see at a glance where the company is financially.

Your estimated revenue is critical to predicting the future. So many people overestimate this number and land the business in trouble.

The sale of your goods and services should be realistic, especially when planning timelines and payment terms.

Management should evaluate fixed costs all the time. Evergreen contracts, the ones that roll over year after year, should be renegotiated every year. Annual escalations are not a given. Shop around for comparative insurance quotes, bank fees, and loan options.

Your variable costs are those that can change based on volumes, exchange rates, or demand. Keep an eye on these, as they can spiral out of control quite quickly. Often the unforeseen costs of a business, variable costs can include bank or credit card fees, commission, or increased production fees.

Your once-off costs will include moving, set-up, equipment, furniture, or software. Shop around and ensure you are getting good value and not just the cheapest option. If you need a printer to last, invest in a good quality machine with refillable cartridges. Often, the servicing is the most considerable expense.

Cashflow is probably the most challenging element to manage. Keeping a positive cash flow in the business is essential to its survival. Living in debt, overdraft, or constant loans increases your company’s cost with added fees and interest.

Finally, your profits need to be listed on your budget sheet. The profit will outline how your company is growing. Adding marketing to your budget will boost your business and increase sales and profits. So if you have spare cash, invest it in promoting your business.

Planning is critical for success

Invest the time to do a business budget properly, remove the anxiety of not knowing, and allow yourself to plan for a successful future.

Bizcash is here to assist with your business cash flow and to help you grow. For more information on our Invoice Discounting or Business Loan products, or arrange for a demo on the financial dashboard, get in touch here. Follow our social media pages here for tips for small businesses.