• Financial Planning
  • Budgeting Basics
    • Creating a Budget
    • How to use your budget
  • Cashflow Basics
    • Cashflow Forecasting
    • Managing Cashflow
  • Profit & Loss Basics
    • Records required for producing a profit and loss account
    • Profit and loss accounting periods and tax
  • Balance Sheet Basics
    • Contents of the balance sheet
    • Accounting periods
• Raising Finance
• Bank Articles
• Support Schemes
• Local Finance Support Schemes

Budgeting Basics

It's essential to plan and tightly manage your business's financial performance. Creating a budgeting process is the most effective way to keep your business - and its finances - on track.

When you're running a business, it's easy to focus on day-to-day problems and forget the bigger picture. However, successful businesses invest time to create and manage budgets, prepare and review business plans and regularly monitor finance and performance. Structured planning can make all the difference to the growth of your business. It will enable you to concentrate your resources on improving profits, reducing costs and increasing returns on investment.

New small business owners may run their businesses in a relaxed way and may not see the need to budget. However, if you are planning for your business's future, you will need to fund your plans. Budgeting is the most effective way to control your cashflow, allowing you to invest in new opportunities at the appropriate time.

If your business is growing, you may not always be able to be hands-on with every part of it. You may have to split your budget up between different areas such as sales, production, marketing, etc. You'll find that money starts to move in many different directions through your organisation - having a budget is vital to ensuring that you stay in control of expenditure.

A budget is a plan to:

• control your finances
• ensure you can continue to fund your current commitments
• enable you to make confident financial decisions and meet your objectives
• ensure you have enough money for your future projects

It outlines what you will spend your money on and how that spending will be financed. However, it is not a forecast. A forecast is a prediction of the future whereas a budget is a planned outcome that your business wants to achieve.

There are a number of benefits of drawing up a business budget, including being better able to:

• manage your money effectively
• allocate appropriate resources to projects
• monitor performance
• meet your objectives
• improve decision-making
• identify problems before they occur - such as the need to raise finance or cashflow difficulties
• plan for the future
• increase staff motivation