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How many times have you compiled a budget for your organization that no one seems to look at? Ever wondered why? Most often because the budget isn’t orientated around and driven by these three key areas:

“Budgeting is the control mechanism for allocation of key business resources in the best manner to generate the highest return”

However, having a budget without proper planning can be a costly affair. Three key takeaways to keep in mind whilst creating your effective budget

1) Have a clear goal and vision

Knowing what you want to achieve within a set timeline ease out the planning for budget. Your goal should be clear and precise. Your goal and vision will determine the direction of your effective budget planning. (e.g. If your goal is to add a new division within your business then your budget numbers should focus on that goal).

2) Close relationship between Revenue and Expenses

Whilst planning for the budget makes sure to have a close relationship between revenue and expenses. There needs to be a certain linkage between actions and expenses which leads to revenue in return. If your revenue expectations are not matching the expenses then your budget is likely to fail within the first month. (e.g. If you are increasing revenue in a certain division then your Salary & Wages expense should increase by the same ratio as well)

3) Assess external factors

When planning for a budget assess external factors as well. For some organizations, the holiday period in December can be a slow period. Other various factors such as pandemic or lockdowns etc. should be kept in mind. Industry benchmarks are equally important in assessing the numbers. (e.g. business that requires timber for their production line will have to keep slow timber supply periods in mind)

For a budget to be useful it should be realistic and achievable!!

Regards: www.smartbusinessadvisors.com.au