Why Budget?

So, you have your accounting and bookkeeping software, everything’s reconciled beautifully, it gives you a clear and unambiguous picture of your business’ health each month. Do you really need to add ‘create and maintain a budget’ to your to-do list? The short answer will come as no surprise- it’s a resounding YES from us.

Look, you’ve heard us say a million times that the numbers don’t lie, be it your P&L, your income and your expenses- they all tell a story about your business’ health. A budget is simply an extension of this, but one that allows you to have a business planning approach that is robust and drives your success over time. When you add a poke around your budget to your “Brunch with your Numbers” date, your knowledge will be amplified and we all know that knowledge is power.

Research tells us that there is a clear link between people who embrace the process of budgeting and successful, sustainable businesses. People with accurate, consistent budgets are able to access funding and investors, they can manage their direct cost logistics, manage staffing according to their needs and their strategic planning and decision making is supported and scaffolded. Basically, it’s a means to manage income while having crystal clear awareness of where, when and how to spend it appropriately and effectively for ongoing success.

People with a handle on their budget have an intimate understanding of their business’ financial health which means they can be nimble, responsive and use momentum to their advantage when things are going well. Conversely, when the numbers are indicating a bit of a downturn they are never caught by surprise- rather they can put things into place to turn things around, and rapidly.

So, what even is a budget? You may be familiar with the concept of a personal budget, where you have a clear overview for a month or a year about the predicted expenses (school fees, mortgage, utilities, car costs) as well as your income, so you manage your bank account in a way that balances the money going out to the money coming in. A business budget is theoretically no different. It’s a document or a tool that estimates and anticipates the income and expenses of a business over time, again monthly and yearly, but most businesses also include quarterly budging as part of their process in line with ATO reporting requirements. It can live in bookkeeping and accounting software or it can be a spreadsheet.

In many ways, a budget is like a “numbers only” business plan, in that it is a living, breathing, evolving document. It’s dynamic and needs to be flexible. Obviously we all have expenses that we can anticipate and don’t really change, but sometimes our income fluctuates, particularly if a business is seasonal. A good example of seasonality and income fluctuations is floristry- florists have a huge income over Valentine’s Day and Mothers’ Day, but their income over other times don’t have that same massive spike.

A budget is a way to live and work within your means and to manage challenges- both expected and unexpected. It’s a way of measuring success in the context of meeting goals and the more detailed and complete it is, the more it allows for robust planning. For this reason, it also needs to be realistic. When you have a clear understanding of your performance, to the point where you can predict it by way of your budget, it means your goal setting and future planning is equally robust and you’ll have no need to feel nervous about your “Brunch with your Number” date.

A budget is a secret weapon- if you’d like some support creating yours, please reach out.

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