To draft your budget and to planning your revenue and expenses is important for your business. It allows you to compare your forecast with real numbers and adapt when needed. It also allows you to have more time to concentrate on long-term objectives. That’s what budgeting is all about.
What should be in your budget?
Your budget should at least contain:
- The planned revenue, their value and when they are expected,
- The fixed costs of your business such as employees’ salaries, insurance, rent…,
- The variable costs of your business: supplies, travels, renovations (for instance).
Your budget should be as detailed as possible in order for you to follow through with it at ease. It will cover all expenses from big projects such as employment or development to small everyday purchases in petty cash.
To draft your budget and to plan will also help you in case of an emergency or to handle a debt.
What is the difference between a budget and a cashflow forecast?
A cashflow forecast shows when you expect money to come in or out of your bank account. In other words, it shows how much money you plan to pay or receive for your business.
We first need to prepare a yearly budget split monthly, which will show us if the company is profitable or not. From the monthly split of the budget, we will be able to prepare the cashflow forecast. Once the cashflow is ready, it will be possible to see where and when more cash will be needed.
Sometimes, a nice budget is not feasible in terms of cashflow, and the manager will know then, that they should find a loan or negotiate their payment terms. Both tools are extremely important.
When should the budget be prepared?
You can prepare your budget a few months in advance, for the whole year. For example, for your 2023 budget, it is recommended to start now.
But a budget is useful only if used during the year. Don’t hesitate to regularly compare your company’s figures to what you planned, and update your forecasts. It will help you to figure what adjustments would be necessary to make, and it will give you a better picture of your business’ performance.
With a well-drafted budget and cashflow forecast, you will have a better understanding of the everyday use of your finances.
At CTC Accounting, we offer CFO services to help you prepare your annual cashflow forecast and budget. Contact us for more information.