For any business to be successful, there should be a clear idea of what funds are needed, and what is available.
Writing a business budget isn’t as simple as having an awareness of your revenue and expenses; you also need to weave your business objectives and strategy into the plan, and consider knock-on effects from one budget to another.
Here are four things you need to think about when writing a business budget.
The objectives of the organisation
The first thing to consider when writing a business budget is the overarching objectives of the business, so that your budget can be tailored to them.
Use SMART objectives as the basis for your budget. If you haven’t created them before, SMART objectives should be:
- Specific: focus on a particular target
- Measurable: set quantifiable objectives
- Assignable: specify who will be responsible for each objective
- Realistic: analyse current resources to work out what can really be achieved
- Time-related: give a timescale
So, one of your SMART objectives could be to reduce the cost of goods by 10% over the next year. This could then act as the focal point of your budget.
There is no point in simply setting objectives, without implementing a strategy that will enable you to achieve them.
Your organisational strategy is likely to contain multiple strands that relate to each of your objectives. To address your objective of reducing the cost of goods by 10%, part of your strategy might be to source a local supplier with lower delivery charges.
The key budget factor
In any business, there will be something that limits output, and this is called the key budget factor.
For example, the key budget factor could be sales, the availability of raw materials, the capacity of a factory, or the labour force available.
The key budget factor will need to be identified first, as it will be used to drive other budgets.
How budgets are linked
When you have identified your key budget factor, you can use it as the basis for other budgets.
Each budget you create will have a knock-on effect on the next. For example, the production budget dictates how much material will be needed, and so links closely with the material usage budget.
Each of these aspects of writing a business budget will be covered in depth in our webinar on the 2nd April. Sign up here.