The Essentials of Budgeting August 16, 2022

The essentials of budgeting

Setting a budget can seem like a complicated process initially. However, as the yardstick for measuring success, it is a process business owners and managers alike need to get to grips with.

As well as measuring success, budgeting allows you to set out a financial spending plan against key company activities, ensuring your business doesn’t spend more than your income, and aids with planning expenses across a period of time.

To help you to understand the essentials of budgeting, the experts at LTFE have pulled together a list of the top benefits budgets can bring to your company. These include:

Protection from the unexpected

As well as enabling you to plan out your company’s expenditure, from monthly outgoings, expansion plans and equipment updates, budgeting allows you to protect your business from the unexpected.

Financially planning for unforeseen and unavoidable circumstances - such as a key piece of equipment breaking down - means funds will be available if you need them. Budgeting helps to avoid the risk of debt or a halt to operations caused by the need to redirect funds from one area to another.

Effective reporting

Having a well-planned budget not only helps you to effectively report back to governing bodies about progress on goals, but it also gives investors confidence in your operations. Seeing your anticipated income, expenditure and profit expectations planned out may make them more likely to take that leap and invest.

Business goal setting

Budgets can provide a whole host of useful insights to aid business operations. Tracking income and expenditure can help managers to set goals around production targets, sales forecasts and marketing campaigns as well as problem solve if things aren’t going as planned.

Reforecasting your budget halfway through the year is a good practice to learn and can ensure your goals remain realistic and achievable, in an ever-changing environment. Reforecasting allows you to review your expenditure and income to check if you are on track with your goals and make changes if needed.

For example, if recruitment for a role wasn’t successful initially, you may have made expenditure savings during the first and second quarters of the year. This may help you to rethink the role or you may simply just move the dates when you expect the expenditure to occur. You can also take staff shortages into account should production levels or income be lower than expected.

Improving staff motivation

Having a budget and discussing it regularly with your management team and wider staff base can help to improve staff motivation, as well as confidence in your business’s leaders.

When income targets are being met or exceeded, it gives you a chance to thank people for their hard work and successes. In addition, if things aren’t going to plan it can give staff members a chance to input into problem-solving activities, and also give them drive and focus going forwards into the next quarter, as everyone strives to meet the goals set out.

Supporting big decisions

By budgeting every year, you will have the data you need to make big decisions which may involve funds moving in and out of your business.

Decisions about whether you can afford pay increases, a premises move or equipment updates can all be aided with data from the budget. Profits may be slightly higher or expenditures lower than expected, meaning these additional costs will be covered easily.

Support with your budgeting

If you are a business owner or a newly promoted manager and you need support getting to grips with your budgeting, LTFE can help.

Our five-day ‘Essentials of budgeting’ course help you to set up your budget spreadsheets with confidence

The course, which is delivered by experts in London, Frankfurt, Dubai and Milan, will enable you to:

Define planning and its purpose within your business
Describe the planning and budgeting cycle
Explain the strategic planning process
Perform strategic analysis of your external and internal environment
Explain the different types of budget preparation methods and identify the most appropriate one for your organisation
Describe and perform the basic steps in preparing an operating budget
Prepare a departmental spending budget
Identify opportunities for cost reduction
Manage departmental performance against your budget

Book your place on one of our upcoming ‘Essentials of budgeting’ courses.

Our next course is hosted by Carl Ford - an expert accountant and an international speaker and trainer, covering topics across the accountancy and finance spectrum, as well as business growth and personal development. Join Carl in London from September 12^th until September 16^th for a chance to travel, train and develop your budgeting skillset.