Creating a business budget

[CG2018]

Good morning everyone,

We need to put together a business budget for this year, something we have never done before. I have software I can use, and i have last years figures that I can use as a guide.

My question is, how do i project a budget for this year? We anticipate our sales will be increased but we don't know by how much:
- is there a percentage I should go by?
- if we are starting out with this very new should I go just by last years figures?
- or, as we will be really pushing the business forward this year, could i use figures that we hope to achieve rather than what we achieved last year?

Hope that makes sense and thank you in advance.

Carin

 

[Chris Ashdown]

With all companies a budget is a good idea and also a cashflow plan

The first year is a good basis to start but also in most cases the worst figures as it took a lot to start getting sales

If you do it on excel then enter last years figures and then in the next column multiply them be 5% and look at the result and see if it makes sense

You could also do it with say the last 4 months of last year and see how that looks it will most likely give better results and a more realistic assumption as most companies grow sales each month

Note most companies fail due to cashflow when expanding and not monitoring cashflow

Try a few different percentages

The cashflow should use the same prediction you accept as the most realistic and show any area's that will leave you short of cash so you can plan

 

[@aiteoconsulting]

The fundamental question to ask is why do you need to do a budget? Are you looking to get finance, prepare targets for others, etc. This will influence the answers to the question.

 

[CG2018]

Thank you for your answers.

The thinking behind us doing a budget is to see our regular outgoings (overheads and expenses) and to create a realistic budget for things we have not budgeted for before, e.g. advertising, to see what money we need to break even, and to then set financial targets to what we as a business want to achieve.

Or can this be achieved by looking at cashflow?

 

[@aiteoconsulting]

Makes eminent sense. You would be best doing it on a cash basis for now anyway. I would suggest building up all of the costs you can think of month by month, getting the timings as correct as possible, and then add 10%-15% as a contingency because you will not get everything totally correct. (Bear in mind that if you're looking to increase sales, some of your costs will go up so you should not rely simply on last year's figures.) You can then work out what revenue you need to break even, and turn that into a unit sales target.

 

[CG2018]

That is very helpful thanks, so im basically working from the bottom up, as I do need to figure out revenue needed and create targets to grow from there. Thank you!

 

[GlennMiddleton]

Listing all the costs associated with trading is so important, rent, rates, insurance aren't issues to take lightly. Also use it as a opportunity to see if you can cut costs, cheaper premises and so on.

 

[STDFR33]

You need to take into consideration timing differences, seasonal variations etc.


For example, if you put £1000 into month 3 as a marketing push, what sales increase do you anticipate to generate from that spend. When will those sales materialise, month 4, 5, 8?


Then you need to think about how you are going to service those sales. It’s no good selling 500 widgets if you don’t have the stock. So you are going to have spend on stock prior to the sales being generated.


Then there’s costs that will differ because of the season such as gas and electric.


If you have increased sales in a month, have you increased the spend on fuel for deliveries, courier charges, any temp staff / contractors, overtime etc?


If you have factored in things like overtime for staff, have you also factored in the associated costs such as pension and NI?

 

[CG2018]

You need to take into consideration timing differences, seasonal variations etc.


For example, if you put £1000 into month 3 as a marketing push, what sales increase do you anticipate to generate from that spend. When will those sales materialise, month 4, 5, 8?


Then you need to think about how you are going to service those sales. It’s no good selling 500 widgets if you don’t have the stock. So you are going to have spend on stock prior to the sales being generated.


Then there’s costs that will differ because of the season such as gas and electric.


If you have increased sales in a month, have you increased the spend on fuel for deliveries, courier charges, any temp staff / contractors, overtime etc?


If you have factored in things like overtime for staff, have you also factored in the associated costs such as pension and NI?

Yes thats a lot to consider, we are only a very small business at the moment, just myself, my husband and then trades that subcontract to us. I am guessing there are professionals we can access if/once we get to that stage of budgeting as I can grasp the basics with some effort, but if can over my head a little too!