We always say at BYO, “Failing to Plan is Planning to Fail” (Benjamin Franklin). Amidst the hustle and bustle of being a business owner, it’s easy to overlook one of the most crucial aspects of planning for business success - budgeting. 

Why Budget? 

A budget serves as a financial roadmap for your business. It provides a clear picture of your income, expenses, and profitability, enabling you to make informed decisions. Benefits we’d like to highlight: 

1. Control Over Finances: A budget gives you a clear understanding of your income and expenses, helping you avoid overspending and debt accumulation. 
2. Improved Decision-Making: With a budget, you can make proactive decisions about investments, cost-cutting, and growth strategies. 
3. Goal Setting & Tracking: A budget helps you set financial targets and track your progress, keeping you focused on your long-term business goals. 
4. Cash Flow Management: Budgeting ensures you always have enough cash to cover your expenses, helping you avoid cash crunches. 
5. Risk Mitigation: By forecasting revenues and expenses, a budget helps you anticipate potential financial risks and devise strategies to mitigate them.
   
   

Demystifying Budgets  

Budgets are an essential tool for management to establish financial direction in line with the strategic goals of a business. These are distinct from forecasts, which are reports that present the anticipated financial outcome of a particular period.  

We suggest starting a budget after the prior year's third quarter has been closed off and setting it for the next 1-2 financial years.  

Preparing a budget can feel like a daunting task, but with the support of your accounts team, it can become more manageable. At BYO, we support our clients in creating budgets by doing the legwork. We ask business owners to set their goals and targets and discuss what is required to achieve them. Based on this information, we create a budget that is ready for our client's review. With just two touch points and some of your aspirations, we can make budgeting a much simpler process. 

The Bottom-Up Budgeting Approach 

If you have a larger organisation, you can share the load with your team while getting their buy-in and accountability on key profit drivers with Bottom-Up Budgeting. While traditional top-down budgeting starts with higher-level categories and trickles down, the bottom-up approach begins at the operational level. It involves each department estimating its budget, which is then aggregated to form the overall budget. This approach has several advantages: 

1. Accuracy: The predictions are often more accurate since the departments estimate their budgets. 
2. Employee Engagement: Involving employees in budgeting can lead to increased motivation and ownership. 
3. Flexibility: Bottom-up budgeting allows for adjustments as it accommodates department-level changes more easily.

Tracking Performance for Nimble Decisions 

Once your budget is set, it’s crucial to track it regularly. This involves comparing actual results with budgeted figures, identifying variances, and understanding their causes. Regular tracking allows for nimble decision-making. We recommend monthly meetings with executives or senior management to reflect on the progress made during the month and year-to-date. If you exceed your budget, you can quickly identify the problem areas and take corrective action. If you’re under budget, you might find opportunities to invest more in growth initiatives. 

As the next year comes to an end, take the time to reflect on your goals and the budget for the year and create a new one. 

Budgeting is not just about crunching numbers. It's a strategic tool that can help drive business success. As we approach the new year, let's embrace budgeting and unlock its potential for our businesses. Remember, the journey of a thousand miles begins with a single step. Taking the first step can be as simple as giving us a call.  

Please feel free to reach out to Grace Occleshaw at 0410 770 802 or via email to schedule an initial meeting.