It’s a tough time to be in business, with the rate of UK enterprises in “critical” financial distress leaping towards the end of 2023. It means that businesses looking to grow must be extremely careful not to overextend.
Budgeting is therefore a crucial part of the planning process for organisations that should not be overlooked. Below, we’ll explore how to prepare your business for the challenges of the future using sensible budgeting strategies.
Creating a realistic budget
Having a clear outline of your income and outgoings that doesn’t sugarcoat the reality of your operations is vital as, without understanding what you’re working with, you leave yourself open to mistakes that cost more than you can afford.
Identify all your income sources, using past performance data to help forecast when and how money will come in. Document all fixed and variable expenses, leaving room for any one-off expenditures that are remotely likely to occur. It’s also wise to allocate some of your funds purely to cover unexpected costs.
Common pitfalls to avoid during budgeting include overestimating revenue and underestimating expenses – don’t worry about making the numbers look as good as possible. Realism is essential.
Monitoring and adjusting your budget
A budget is not set in stone once drawn up; it requires regular review. Track financial performance against your budget on a constant basis and adjust quickly if necessary. Make sure to communicate with stakeholders about financial performance so that any changes made to deal with discrepancies are understood.
Cost control and efficiency
Once you’ve established what you’re spending and where, you can explore ways to make that spending more efficient. Running cost-benefit analyses can help you evaluate how much return you get from particular expenses and identify ways to improve them – for example, by renegotiating contracts with suppliers or shopping around for better terms.
Technological solutions, such as adopting new software to streamline operations, can be handy on this front. You could also make use of an employment cost calculator to manage and forecast labour expenses.
Planning for growth
Growth is all well and good but it’s important to be ready for it when it happens so that you can maintain your gains. A well-thought-out growth plan balances your immediate needs with long-term strategic investments. Start by defining clear objectives using the SMART criteria and allocate resources accordingly.
You might need to secure funding in order to achieve the growth that will become self-sustaining. If so, explore options like loans, grants or investors, and build a clearly communicable business case to demonstrate how the funds will drive growth. Prioritise investments in areas with the highest potential returns and track the impact of these investments on business growth
