It might sound early, but it is time to start working on next year's budget. Getting ahead of the game is crucial because it will help you minimize future risk, as well as negate any unpleasant financial surprises that may pop up. Moreover, it will give you a holistic view of the overall financial health of your business, and if your projections for future growth are viable against this budget.
In our experience, there are certain reports and statements that need to be considered, as well as your own abilities. The combination of all of those is absolutely critical in this process. We have identified some resources here that will be of further help as you undergo budgeting for next year.
Key Documents To Examine
Simply put, how much money did you make, really? Pen to paper, this is the exact amount and this is what you will likely be working with next year as well. Was it enough, or does there need to be more revenue generation efforts?
Think of this number as your baseline, and work with it to understand what is needed for next year. It is natural to want more profit, but consider what you made this year as the starting point to understand what growth will really look like and what you can afford.
Cash Flow Statement
So you made a decent profit, and that is great...but what was your cash flow like? Are there expenses that can be cut, and are you really maximizing your profits? It is essential to look at each aspect of your business and understand where your money is coming...and where it is going.
There will likely be cuts in operation that will help with the flow, and you may have to get a little creative, but it is better to prepare for that now.
This part is a bit more nuanced since there are many moving parts. This sheet will give you an overview of the health of your business, especially in regards to its liabilities and assets.
Reviewing this will help you shape next year's budget because, at this point, you will know what resources you have. This will also help you prepare for emergency situations, and know what recourse you have if financial stability is lost for some reason.
Work with your financial team to understand your business expense - inside and out. It is easy to lose sight of that with all the other tasks that need to be done, but curbing spending is key to ensuring your business will remain stable.
There is likely expenses that can be cut or contracts that could be renegotiated. Understanding your spending trends will be crucial for future planning, because it will help you understand exactly where your money is going, and whether it should be reallocated towards something else.
Other Aspects To Examine
Sure, you need a budget because it is necessary for your business and its day-to-day operations. But what about its future? What direction do you see the company going in, and how much room in the budget do you need to make that happen?
Some goals might be loftier than others, but it is better to have a set of goals and manage your expectations, and budget, accordingly. Is the business going to grow in any way, or will it remain as is? Either way, your budget must account for these scenarios.
Speaking of scenarios, another crucial factor in budgeting is accounting for setbacks. No one really anticipates this (or at least they try not to) but businesses can befall hard times. Could your current budget handle that? Are there debts that need to be settled for these setbacks, or is there enough in an emergency savings account that could take the hit?
Ultimately, your business should be able to financially withstand most setbacks. However, if it is constantly taking hits, this might be the time to sit with your financial teams to strategize on what safeguards need to be placed to prevent that.
Your own budgeting skills
This one is the tough one, after all, it is hard to admit what your weak spots are. But really think about how you budgeted last year, and if that strategy was correct. If there were gaps and issues, considering enlisting professional help to ensure you are on the right track. Small business owners often fall into the trap of believing they must to do everything themselves, but that often hurts the business. Consider what your strengths are, and if budgeting is one of them. If not, it is better to start searching now for someone who can help you craft the right budget for your needs.
The Ultimate Lesson? Create the budget you need, not the budget you ideally want
Might be a hard one to hear, but it is true. Carefully evaluate what your business needs, and budget accordingly. It might be nice to add-on to it for all the things on your business wish list, but that is not always possible.
Equip yourself with the right knowledge and tools to understand where the potential for growth is, and where the limitations are. This will help you create a realistic budget that can withstand heavy business activity.
If budgeting is not your forte, we are happy to help in that process! Sign up for a free consultation online today.