Most entrepreneurs know how to devise a basic company budget based on regular payment obligations and average earnings. In fact, many directors think that this particular aspect of business management is so simple that they subsequently make the mistake of neglecting the practice of budget keeping altogether.

Since most businesses operate with the goal of expansion, change is a necessary presence on the road to success. With that said, change does not always give warning, so it is difficult to repeatedly predict the monthly financial outcome of a business with complete accuracy. In order to account for the unexpected variables that will undoubtedly be encountered, you’ll have to start thinking about accounting with a less rigid approach.

By being flexible in regards to setting and adhering to limits you can avoid the frustration and hassle associated with continual budgeting mistakes. Instead of aiming for the lowest possible number or range, be liberal and focus on allocating additional funds to protect from shortages while utilising leftover funds whenever possible.

It is more important to learn how to adjust when a budget goes over or under, than to unrealistically hope to spend the same exact amount each month. In this guide, the “The Over And Under Method,” we’ll teach you what to do when a company exceeds or undershoots its budget, how to prevent and prepare for such occurrences, and how to capitalize on unforeseen positive opportunities.

What To Do When a Company Goes Over Budget

If your company is about to, or has already gone over its budget and is searching for a solution, start by heeding the following three tips:

  • Reassess and Pinpoint Flaws

The first thing you’ll need to do after exceeding your budget is account for every expense in order to determine which one pushed you over the limit. Will this expense be recurring? If so, it will need to be taken into consideration during the revision of the following month’s budget. Is it possible to reduce this expense? How much should you set aside for it in the future?

  • Obtain Emergency Funding to Restore Balance

Sometimes all that is needed to repay creditors and get back on track is a bit of extra cash flow. Even if your company has poor credit, it may be possible to obtain approval for a secured loan by using an asset as a security. You could also use invoice factoring to sign over your accounts receivables to a lender who would then give you enough cash to match the value of future payments from your clients.

  • Allocate a Reserve Bank

Finally, the best way to avoid the hassles caused by going over a budget is to simply allocate a separate bank that can be used in times of need. A good general rule of thumb is to keep a reserve that is equal to at least 50% of the currently monthly spending limit. So, if your monthly expenditure goal is set at approximately £5,000, you would want to have an emergency reserve of at least £2,500 stored in a savings account at all times.

What To Do When a Company Has Gone Under Budget:

Although going under budget is certainly less stressful than spending too much, it would be wise to use every undershooting as an opportunity to learn and invest. Most people feel that staying within a budget is an accomplishment in itself and choose to simply account for the remaining funds as additional profit for the month. However, instead of resting on your laurels and spending the excess, consider the following investment and saving strategies:

  • High Interest Savings Accounts

Depositing excess savings into a bank account that collects interest at a high rate is a good way to make your money grow over the years. For convenience sake you could schedule automatic deposits from your business checking account every month.

  • Products/Service That Provide Improvement

Purchase products or services that will allow your company to operate more efficiently or provide a better value to customers. If technology is an integral part of the business then the first commitment should be to upgrade software/hardware as needed. Even if one month’s excess is not enough to pay for an upgrade, saving over the course of several months will give you enough to invest in the business without dipping into profits.

  • Additional Inventory

Consider spending leftover money on low-cost inventory; this will increase the company’s total asset holdings and give it more products to sell in the future. Given the fact that the money was already set aside to spend on business expenses, it only makes sense to reinvest it.

  • Expanding the Reserve Bank

The larger your reserve bank, the better you’ll be able to deal with emergency situations when they arise. The reserve can also be used to pay for appealing and/or limited investment opportunities that may require you to furnish several thousand pounds quickly. If you can’t think of any equipment to upgrade and you don’t need additional inventory, adding the leftover funds to the reserve bank is a good way to prepare for potential future hardships.