Sticks and stones may break the bank, but budgets always save me.
Be it in one’s personal or work life, planning ahead is a prerequisite of success. While one’s personal life allows more wiggle room, when it comes to professional environments, having a plan is mandatory. Going into a situation without one is reckless and has a very high chance of failure. Similar to having an agenda when going into a meeting, a financial plan is crucial for a business. It’s not a task to be taken lightly, and it’s not a light task either. Here’s some tips on how to make budgeting a smooth journey.
First of all, two words: use software. There’s been such a boom recently in ERP software (i.e. software that makes a company’s life easier) that it would be a shame not to look into what is available on the market and see if there’s anything that can serve not only as a process streamlining tool, but also as an instrument for long-term, comprehensive analysis of the company’s financial situation. The time for pen and paper or basic spreadsheets has gone, embrace the technology brought on by the 21st century!
Every company is different, so every budget is different. Learning from others is recommended, copying in full what they do is not. Naturally, the templates used by others will not fit your company’s needs and wants. What you should do instead is take the time to determine precisely the components of your budget. The default elements are: a timeframe for which said plan is being built, costs, revenue, profit. That’s it. Put in plain English, what’s the period of time I’m looking at, how much it will cost me to make things run, what income I’m expecting from it, and what I’ll be left with after I take care of making things run again. That’s just the defaults, that every budget should have. Everything extra is up to you and the specifics of your business.
When discussing budgets, the first thing people think about is estimations and forecasts. Indeed, that’s a huge part of creating a financial plan. You can’t think out a strategy for the future without evaluating all the moving parts of said future. You have to make projections of what’s to come, both inside and outside the company. Just how internal movements change the in-house scenery, so do the market fluctuations alter every single company on that market. In fact, for accurate data, it is advisable to examine industry standards.
But there’s another important aspect that you should have in mind when doing all the math, besides the future. And that is the past. You can examine how things were done previously, what was most successful, and what went wrong. Thus, you can adjust or experiment with new methods or approaches. If you’ve chosen to use a budgeting tool that is also capable of storing data, it will be infinitely easier to make comparisons, calculate inflation, define trends, and so on. To sum up, plan for the future, learn from the past.
Moving on, this wouldn’t be a discussion about finance if we didn’t mention one of the most important features of a solid budget plan, that is, the back-up plan. Under no circumstances should one enter a dangerous situation without a plan B; running a company make it even more so. Make sure to build an action plan in case things go sideways; no need to be grim about it, but keep it realistic – worst case scenarios should truly reflect possible negative influences that your budget can suffer.
The back-up plan should consist of two things: one is accounting for risks (as mentioned above), the other is setting up an emergency fund, only accessible in certain conditions and by certain people. The amount of resources placed in this fund should be decided based on a series of company specific factors. Remember what works for others might not work for you.
Another component of your budget should be comprised of cost-cutting strategies. After all, there’s no better time to start saving like today. (Side note: same goes for recycling.) Examine your company’s costs and figure out where you can spare, reduce, or eliminate. For example, you could try outsourcing jobs to freelancers, minimize costs for products and resources, or maybe barter services with other companies.
A different perspective on trimming those expenses comes, once more, from this century’s technology. Nowadays, numerous activities happen in the cloud, which is a cheaper alternative, that doesn’t compromise quality. Cloud-based architecture also promises infrastructure flexibility and increased security. The only thing left for you to do is go through the vendors and their offers and choose the one that fits your company best.
Last, but not least, a vital detail of budgeting is updating your plan regularly. Creating a budget is not a one-time thing only, it’s a process. And like any other process, it requires maintenance and updates. Make sure you revisit your budget on a regular basis, checking for performance indicators or red flags. In doing so, you ensure that everyone is staying on track, and you can see a crisis way before it hits you.
Every company, regardless of its size, deals with its fair share of challenges. When it comes to financial stability, having a thorough, reliable budget plan is key to overcoming these challenges gracefully.