| iv id="body"> | | | | budgeted for each line item of revenue and |
| Thomas Paine, the great revolutionary writer, is | | | | expenditure. Produce separate working papers for |
| supposed to have said 'People don't plan to fail, they | | | | each line item in the budget; this may be as simple as |
| fail to plan.' His words of wisdom can certainly be | | | | month-by-month predictions of revenue to be |
| applied to budgeting. Planning (together with | | | | generated from one aspect of your business. Jottings |
| foresight) is acknowledged as the best way to avoid | | | | may accompany individual papers as attachments. |
| financial problems. A well-planned budget helps you to | | | | When a review of your budget is called for, your |
| collect and use information about the day-to-day | | | | working papers will be a valuable source of |
| functions of your business and to spot problems | | | | information. For example, you may find that your |
| before they derail your business plan. Here are the | | | | revenue calculations were unreasonable and thus |
| steps to follow in developing your next budget... | | | | were contributing to a budget shortfall. |
| 1. See budgeting as a vital management tool. | | | | 6. Check for variance. |
| Your budget process consists of three main | | | | Variance between your budget and your actuals |
| parts-forecasting revenue and expenditure, recording | | | | must be identified and acted on regularly. Ensure that |
| actual revenue and expenditure, and reporting and | | | | theperson responsible for maintaining the financial |
| acting on variance between the two. Budgets usually | | | | records is provided with a clearly documented list of |
| evolve from business plans and, therefore, will | | | | individual components designated as line items. Using |
| change over time. Your first budget may be nothing | | | | such information, this bookkeeper can logically record |
| more than a statement of targets. In subsequent | | | | the actual transaction that can then be compared |
| years, with established benchmarks and an improving | | | | with the budget. Any variance, positive or negative, |
| track record, you'll be able to make more accurate | | | | between actual and budgeted, is highlighted in a |
| projections. Eventually, your budget will provide a | | | | budget action list for follow-up action. |
| detailed, accurate comparison of your actual and | | | | 7. Prepare a budget action list. |
| desired performance. | | | | A budget action list is a result of the comparison |
| 2. Consider revenue and expenses separately. | | | | (usually at month's end) of the actual versus the |
| Avoid trying to balance your receipts to expenditure | | | | budget. Note any variance on the budget action list |
| in the first instance. Revenue is a product of your | | | | leading to a reassessment of the budget workings, |
| business plan and will have a 'lag' component-a | | | | to an amendment of the recording of actuals, or to |
| start-up period before the cash starts flowing, | | | | action so as to address any variance. |
| anything from a couple of months to a couple of | | | | 8. Prepare a budget report. |
| years, depending on your business. Expenses are | | | | A written budget report is a 'hands-on' summary, |
| your costs of resources and they will probably | | | | prepared on a monthly basis, setting out major |
| dominate in the early days. | | | | variance between actual and budget items. The |
| 3. Identify and list expenses. | | | | report should account for any variance and |
| The first step in costing your resources is to identify | | | | recommend relevant actions. The report is forwarded |
| what those line items might be. A useful definition of | | | | to the boss or nominee who will either confirm the |
| a line item is one to which a monthly dollar value is | | | | actions recommended or suggest alternatives. 'What |
| assigned, such as office rental and rates, staffing | | | | action is needed?', 'Who will take it?', 'When is it |
| wages and benefits, advertising, utilities such as | | | | completed?' These are the outcomes of this |
| telephone and electricity, vehicles, travel, legal costs... | | | | reporting and review process. |
| Many of these items are fixed expenses and this | | | | 9. Use your budget to measure performance. |
| makes the task relatively straightforward. Begin by | | | | If you base your budget on your business plan, you |
| selecting broad headings and list in detail the line items | | | | will be creating a financial action plan. This can |
| or resources associated with each. Under | | | | serveseveral useful functions, particularly if you |
| 'Administration', for example, you might include | | | | review your budgets regularly as part of your annual |
| stationery and office rental. Under 'Utilities' may be | | | | planning cycle. Your budget can serve as:o an |
| listed electricity and telephone. | | | | indicator of the costs and revenues linked to each of |
| 4. Forecast revenue. | | | | your activities,o a way of providing information and |
| Revenue is sales. So, using your business plan as a | | | | supporting management decisions throughout the |
| guide, make projections regarding the sales you hope | | | | year,o a means of monitoring and controlling your |
| to generate. Those projections will represent a target | | | | business, particularly if you analyze the differences |
| and should be broken down into monthly and weekly | | | | between your actual and budgeted income. |
| components-the smallest possible denominator, the | | | | 10. Use your budget to help finance your business. |
| better. Don't ignore historical data when setting those | | | | Potential investors or lenders will want to know how |
| targets; and consider factors like the economy, | | | | they are going to be repaid, and that's where your |
| inflation, whether your industry is growing, and any | | | | budget can help. Your budget gives you credibility, |
| new technology that may improve productivity. | | | | shows how your business is traveling, conveys the |
| 5. Prepare working papers. | | | | type of business needs you have to meet, and |
| Working papers are detailed calculations-cash-flow | | | | identifies the resources you must have to be |
| projections- that provide the monthly figures | | | | competitive. |