Budgeting and forecasting might not be every entrepreneur’s favourite topics. However, they provide the foundation for business growth – and you really can’t get by without them. Every enterprise has a different set of needs and demands when it comes to budgeting and forecasting. However, there are some essentials that are useful across the board.
The basics of budgeting if you want to grow your business
Budgeting is the act of estimating and matching your costs to your revenue. It’s a simple enough equation but one that is essential for growth because it demonstrates where expenses are overinflated, where the business is on target and where there might be additional resources to reinvest. If you aren’t budgeting then you will have very little idea of whether your business is meeting its goals and whether you’re in the black or the red. If you’re looking to grow your business these budgeting tips will help:
- Budget regularly – weekly, monthly whatever works for you
- Use spreadsheets so that your budget is easy to read
- Research all your costs thoroughly if they are estimated
- Update your budget when you have definite income or expenditure figures
- Give yourself a safety zone i.e. additional resources if your figures don’t quite work
- Try to find a comparison to another similar business (industry expenditure figures online, for example) to see if your spending is average
Financial forecasting for growth
Particularly during the early stages of a business, forecasting can involve a lot of guesswork. However, it’s important to use the solid information that you do have and to research and backup statistics that are less solid. When you’re building financial forecasts to grow your business there are some key elements to consider:
- What are your expenses, both variable and fixed? Although revenue might not be something you can accurately state right now, expenses are easier to quantify. So start with your variable expenses (labour, material and supplies, customer service) and your fixed costs (rent, accounting, salaries, tech).
- When it comes to revenues you need more than one estimate. Ideally, you should build in a best case and a conservative revenue forecast – one based on a sizeable marketing budget, large staff, higher price point etc and the other on more modest assumptions.
- Checking your estimates. There are a number of ratios that will show you whether your estimates are relatively accurate or wildly off the mark. For example, Gross Margin, which is the ratio of direct costs to total revenues. If this suddenly jumps from 10% to 45% in one year to the next, for example, you’re most likely way off the mark.
Are you making wise investments?
If you want to grow your business then you need to invest the cash that you have wisely.
- Technology – only buy the tech you need, for the people you have and with a complexity you can understand without expensive support.
- Structure – are you investing in something scalable? If your business grows quickly your marketing, sales and fulfilment structures will need to be able to keep up.
- Accounting – you may feel more inclined to invest in products or customer services but if your accounting isn’t sound then forecasting and growth will be hard. From accountants, to accounting software there are lots of options.