Sunday, May 26, 2024

How to Set and Track Budgets for Your Business

Setting a useful budget in a business world where the pace of change continues to accelerate is an increasing challenge.  Last year’s figures are a starting point, but when the only certainty is uncertainty, trying to forecast trends is always going to be a gamble.  This, however, is not a reason to view the exercise as perfunctory; it’s a reason to devote time and expertise to create a budget which is as detailed as possible.  Although the budget needs to be in place before the start of the financial year, you should be prepared to revisit it regularly in order to scrutinise how it’s measuring up to the reality of the financial year and to make adjustments accordingly.

An effective budget will help you:

  • Focus on the big three: sales, costs and working capital.
  • Ensure that day to day financial commitments are met.
  • Help the strategic allocation of resources.
  • Identify a problem before it becomes a crisis.
  • Ringfence finance for future projects.
  • Attract external finance and grow your business.

Key Headings

  • Income streams – both guaranteed and projected.
  • Fixed costs – plus a margin for increase.
  • Variable costs – assume increase rather than decrease.
  • One off purchases – identify essential and inessential purchases.

Keeping Track

Make sure that your business is using the most appropriate fintech to track expenses and handle the paperwork.  A cloud-based accounting system such as Sage will handle all the documentation and processes required in business, such as payroll, taxes, invoicing, payments and expenses.  This system gives your business a real time overview of cash flow which can even be accessed on the go from a mobile app.  This saves time and therefore helps your business improve its productivity.  It also drastically reduces the possibility of error and frees up your employees to do more challenging, satisfying work.  It also provides much increased security and makes it easier to predict cash flow needs.

Managing employee expenses

Employee expenses have, in the past, been a time consuming, unpredictable area of company finance.  The use of a company credit card, passed around staff members, has in many institutions, led to a culture where no-one takes responsibility for the expenses incurred.  By issuing staff with a prepaid company card, a company can provide its staff with the necessary financial autonomy, whilst maintaining a secure grip on expenditure.  Prepaid cards are loaded with a specific budget, enabling a company to differentiate staff allowances, from the most junior to the most senior.  Staff can use the card as they would a conventional credit card, either to make purchases on the company’s behalf to use for travel and subsistence expenses.  Receipts and tickets are simply photographed and up-loaded via the app.  The employer has a real time overview of all staff expenditure and can reduce or increase budgets, impose spending limits under specific headings or freeze an individual card without the need to freeze an entire account.  Prepaid cards are not linked to a company bank account and consequently they are far more secure in online transactions than a conventional credit card.

Claire James
Claire James
Claire is an accounts manager at Fire Digital UK, an online publishing and content marketing company based in the North West.

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