Developing and reviewing your financial budget is the best way to staying on track financially as a small-to-medium business. It’s your birds-eye-view of your business, and can help you make strategic decisions. With the new financial year just beginning, now is a perfect opportunity to set the tone for a good financial year ahead.

If you already have a budget, you can still follow this framework to review and refresh your budget this financial year. The best budgets are alive and need constant maintenance to ensure they are aligned with your current finances and business goals.

Here are 9 tips to help you create a great budget for your business:

1. Assess your financial position

For some people, looking at their finances is an infrequent activity. Before diving into creating a budget, it's good to have a look at your current financial situation. Open up your income statements, balance sheets, and cash flow statements from the previous year and get a bit of an understanding about your financial position right now. You might see trends in revenue and expenses, or note seasonal variations and unexpected costs that may impact your budget moving forwards. Take note of what you find.‍

2. Set Clear Goals

Every budget should align with your business goals. Whether you aim to increase sales, expand your product line, or improve operational efficiency, your budget should reflect these ambitions. Setting SMART (Specific, Measurable, Achievable, Relevant, Time-bound) goals will provide clarity and direction for allocating resources effectively.

Example: Increase revenue by 5% and profit margins by 5%.

3. Estimate revenue

Forecasting revenue is a critical aspect of budgeting. Review past sales data and consider factors such as market trends, economic conditions, and upcoming projects or campaigns that could influence revenue generation. Be realistic yet optimistic in your projections, and remember that these are your best guesses and you can always iterate as you go.

4. Outline fixed and variable expenses

Next, categorise your expenses into fixed and variable costs.

List your fixed costs, this could include:

• Rent

• Utilities

• Salaries

• Insurance premiums

• Software

and any other costs that remain relatively stable month-to-month.

List your variable costs:

• Raw materials

• Marketing expenses

• Travel

and many other expenses fluctuate based on business activity.

Account for both categories to get this as accurate as you can.

5. Budget for one-off expenditures and capital investments

In addition to recurring expenses, factor in one-off expenditures and capital investments.

These may include:

• Equipment upgrades

• IT infrastructure improvements

• Marketing campaigns

By allocating funds for such investments, you can support long-term growth and enhance operational efficiency.

6. Consider contingencies

Business environments are inherently unpredictable. A contingency is a future event or circumstance which is possible but cannot be predicted. By building in a contingency reserve within your budget, you can handle unforeseen expenses or cash flow disruptions.

Having a buffer of about 5-10% ensures you can navigate challenges without compromising your core business activities.‍

7. Monitor and adjust regularly

Creating a budget isn’t a one-time task; it requires ongoing monitoring and adjustments. Implement a monthly review to compare actual financial performance against your budgeted projections. Identify variances and investigate their causes to make informed decisions to correct anything as needed.

8. Utilise technology and expert advice

Technology:

Numerous budgeting tools and software are available to simplify the process for SMBs. From spreadsheets to dedicated accounting software, leverage technology that suits your business needs and budgeting style.

Expert Advice:

At Cornell Irving Partners, we offer budgeting and cashflow management services which can give you clarity and take the pressure off the ups and downs of business. You can book a free call here

9. Communicate and engage your team

Budgeting is a collaborative effort that involves stakeholders across your business. Communicate your budgetary goals and financial strategies to your team members, fostering a sense of ownership and responsibility. Encourage department heads to align their activities with the budget to maximise efficiency and accountability.

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Stepping into the new financial year with a well-structured budget will help you succeed. By planning for your goals you’re much more likely to actually achieve them.