The simple household budget, and its counterpart, the annual corporate budget, have long been staples of financial planning. However, with the advent of ambitious tech companies relying on venture capital and angel investors to turn their disruptive and innovative ideas into pure profit, we’ve also seen a shift in thinking; maybe budgets are too safe. Maybe it’s too difficult to forecast based on market conditions in a volatile economy. Maybe you think your business is too small, or too foolproof, or too steady to need that detailed breakdown. That’s why people say “take the risk!”, and “you’ve got to spend money to make money!”, right? So, what’s the point of a budget?
Much like accurate cash-flow projections, a well-defined and regularly monitored budget is a core tool for any business. Having the ability to track spending and adjust rapidly is a crucial component of building flexibility and agility into your business – and agility is an increasingly important quality in any business in the current economy.
From an internal perspective, budgeting is about controlling costs and allocating resources to the areas of the business you’ve identified are the current focus. This might allow you to leverage your resources to expand a product offering, uplift your brand, or simply maintain a high level of service by retaining the required skill-sets in the business.
From an external perspective, managing a budget and monitoring for overspending is part of any client relationship. If you provide services to external partners, they need to trust you will deliver on time, on budget, for promised value. Without the ability to effectively manage your project spending, you risk client relationships.
Now, these are all the conceptual ways budgets matter. But there are other, more concrete (and logistical) reasons for keeping a carefully thought-out and monitored budget for your business.
Depending on your industry, you may have highly variable income throughout the year. If this is the case, a clear budget and cash-flow projection for the year will assist you to identify months where additional spending on projects or new offerings is feasible. It will also help you to allocate revenue for costs that arise in leaner months, or to plan new hires during profitable times – giving you the opportunity to further uplift your revenue by bringing additional expertise into the organisation.
Finally, a tailored, monitored budget is a great tool to review your year at tax time. Using your budget and financial results to conduct a full annual review is an important way to identify areas for improvement and expansion. Fundamentally, keeping a budget is a way to monitor and improve your business throughout the year, maximising your potential for well-managed growth alongside risk-management.
How can Halkin Business Partners help?
The team at Halkin consists of experienced CFO’s who work with clients across a variety of industries to develop customised budgets and forecasts. Now more than ever its is of utmost importance to review your budget and compare its actuals on a monthly basis. Our consultants are willing and able to assist you with planning, executing and reviewing. For more information click here.