Business Budgeting – The SME edition

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Business Budgeting - The SME edition

For many entrepreneurs the finances are just ‘not their thing.’ When it comes to the core trade of the business, they are doing an amazing job but the finance and compliance bit gets a bit tricky. There are various ways to budget but we’ll go through two popular ones, zero-based and historical: 


 1. Zero-based Budgeting


This is the budget you draw up as part of your business plan (if you have one). The

figures are based on your research and feasibility tests, etc. It’s called zero-based because it’s based from zero ‘factual’ experience of the business. To ensure this type works for you, it’s best to study similar entities and set realistic targets. If your type of business mandates you to rent facilities, gather quotations from ideal commercial offices (including utilities and parking fees) and include them; the same would go with other general expenses and payroll. The advantage with the option is that you get a wholistic and current expectation of your company’s finances. The disadvantage is that there can be a major variance to actuals if your research was inaccurate, possibly dipping into the red now and then. NB: This approach can also be used by entities with trading history should they wish to start from scratch. 


 
2. Historical-based Budgeting

This is the easier one; extract reports from previous financial years, analyze it and make adjustments to cater for the new year. The tricky portion being an accurate analysis to make sound judgements for the changes to be implemented. The advantage of this type is that it’s tried and tested; your objective is to improve from the previous financial year. The disadvantage however lies in the amendments, should this be in bad judgement, the entity will suffer material variances. 

With both types, it’s important to continuously evaluate your performance. Diarize quarterly financial analysis and report sessions to see what happened versus what was budgeted, implementing a second forecast mid-year can also contribute to the success of budgeting. 

Long story short, you know your business, the ins and outs of it and what it needs to thrive, your numbers should reflect exactly that. Tag a professional to assist you if you are still unsure. MAS is available and able to help you grow your business.

                                                                Happy business budgeting! 

#newyearnewme #budgeting #businessfinance