As the year 2021 comes to an end, it could be described as one with unpredictability and hope for a light at the end of the dark tunnel. For most businesses, funding or the lack of it remained a major concern for its sustainability. Today, we will look into one of the key components of a financial checklist which is budget planning.
A financial checklist is a set of actions meant to be completed by a business within a particular period and it is part of the activities involved in financial planning.
Financial planning is a roadmap of a business’ financial projections for growth. It entails both short and long-term projections for the business as well as strategies for achieving the growth projections. On the other hand, budget is a list of planned revenue and expenditure for a given period.
One of the major benefits of a financial budget is that it enables the business to see the bigger picture in terms of its financial health and performance.
For a small business, here are some ways to go about budgeting for the next financial year:
Review total spending during the past or present financial year: this is a good starting point as it enables one to have a clear picture of the business' financial position before preparing a budget plan. The cash flow statement, profit and loss and balance sheets will provide the necessary information required for proper review.
Set goals for the next financial year: based on the information from reviewing the previous statements, the next action is to set goals for the business. To do this, the business has to:
Predict the estimated revenue for the next financial period
List the fixed cost for the period- this includes fixed expenses such as rent, insurance, salary and other fixed costs peculiar to the business.
Estimate variable costs- these are costs that change based on production or sales volumes.
Make allowance for miscellaneous expenses -this is the money set aside for contingencies or emergencies. This is particularly essential to prevent disruptions of business activities as a result of unexpected events.
Prepare the budget: upon the completion of the above steps, the business would be able to prepare the budget.
In summary, it is important to note that in some cases, the actual financial balance or record may be slightly different from the budget, however preparing a budget keeps the business in check.
We at the OVAC Group can help you prepare your business’ 2022 budget. Email us at equiries@ovacgroup.com for a free consultation.