How to plan an effective budget

Despite your best efforts, sometimes things don’t proceed as planned. The business world is filled with uncertainties. Having said that, sticking to a budget promotes fiscal discipline. It helps you stay focused and consistent as you aim for growth. An effective budget flows from a clearly defined business strategy. It doesn’t dictate the latter. A budget facilitates the realization of a strategy; it doesn’t impede it. Let’s explore this further.

1. Be clear of your strategy and plans

It’s a mistake to plan a budget in isolation of the strategy. Business strategy development and budgeting are successive events. For example, as part of your strategy, there’s a plan to acquire more machinery. That obviously has to be budgeted for. Think of the budget as the fuel that will drive you to your destination. It is important to know the latter to budget for the fuel needed.

2. Incorporate cash flow forecasts

A budget without a cash flow forecast is destined to fail. It’s one thing to know income and expenses; it’s another thing to know when they will be realized. Running a business is a marathon, not a sprint. You’ll need to know when the tank has to be topped up to last the journey.

3. What-ifs

In the digital age, there are more uncertainties to deal with as technology is constantly evolving. A rigid budget is idealistic in this environment. Instead, craft an agile and flexible budget. With the experience you have, or perhaps with the help of your accountant, visualize the what-ifs and incorporate them into your budget.

4. Get everyone on-board

In a battle, everyone has a role and knows it well. Unless this is clearly articulated, there’s the danger some may go astray adversely impacting the success of the mission. It’s the same thing with planning an effective budget. Gather the inputs of as many as needed and communicate clearly the plan to move forward.

With the strategy and budget in place, next is to activate them. Tracking their progress is important. To learn more about the steps to develop an effective budget, speak to the team at Sydney Accounting today.