Whatever stage your business or organization is at, it’s important to have the best possible overview of your costs and cash flow. If you’re going to track and measure your overhead, you’re going to need to set a clear budget right from the beginning – and that means putting serious thought into your budgeting from day one.
Budgeting is one of the fundamentals that can often be overlooked by business owners, or non-profit CEOs, whose focus is pushing forward the next goal on the horizon. But when you neglect your budgeting, you’re setting a highly unstable foundation stone on which to build the rest of your business plan.
Why is budgeting so important to the health of your organization? And how can a more proactive approach to budget management improve your chances of achieving and maintaining your long-term business goals?
Why do I need a budget?
A good budget is the foundation of any business plan – you can’t finance your new product, your new office or the long-term expansion of your non-profit until you’ve worked out clearly and concisely what the costs are and what available cash you have to deliver on these objectives.
This means there’s a real imperative to think through each element of your project or strategic plan and to budget for these costs based on sound, realistic numbers.
It’s best to over-estimate, rather than under-estimate, but the costs you plug into your budget need to be an actual reflection of the overall spending that’s needed, and the funds that you can realistically access to meet this spending.
This is why building a budget that’s detailed, realistic and coherent can take some time. The process of gathering the necessary information can be lengthy, and the amount of time taken means that budgeting is often avoided as long as income is exceeding expenses.
Running your finances on a wing and prayer is never an advisable methodology, and that’s why a revenue plan and a good budget are so invaluable.
Comparing your budget to actuals
If you’re going to move beyond the ‘there’s still money in the bank’ mentality, your organization will need a sound revenue plan to guide its financial management.
By getting your planned revenues, expected overhead and other costs down into a more tangible format, you improve the vision and control you have over your financial destiny. And when you have clear budget targets to aim for, that can also become a motivating factor – both for you as the business owner, or non-profit CEO, and your wider management team and staff.
Your budget really begins to deliver once you begin to track and measure how well you’ve met your agreed targets. With a good accounting system in place, you can review your actuals (your historical transactions) throughout the year to measure them against your budgeted figures.
Comparing your budget to your actuals will show where there are any variances. These are gaps between the income/costs you’ve planned for and the actual income/costs that the business has experienced – in short, they’re the red flags that show you whether you’re meeting your budget, or missing those targets. And that’s essential information to be aware of when you’re in charge of the organization’s future and financial sustainability.
When there are challenging variances coming through in your reporting, you can start getting proactive about improving revenues, or reducing costs: both of which can help to bring you back on track with your plan.
You can also use your variances and budget reporting to inform next year’s budget and ensure that the same pitfalls are avoided in the next financial year.
Get proactive about your budgeting
Your budget is something that should never be overlooked. With good budgeting, you not only set a clear structure for your expected revenues and spending, you also provide the information and data to analyze your performance and take the actions needed to keep you on track.
At Checkbox, we can help you to develop a sound, workable budget for your business or non-profit. And we’ll provide the necessary oversight to make sure you’re on track, realizing your potential and meeting your long-term goals.
Get in touch with us to arrange a budgeting session for your organization.