Budgeting in an uncertain time – part 2
12th January 2020
Things every business needs to know
Planning ahead – your 2020 budget
You’ve completed all of the essential preparation work for your 2020 budget, and now it’s time to put pen to paper (or fingers to keyboard – whatever your preference) with some facts and figures.
So, grab your notes and let’s get started...
Firstly, ensure you have your sales figures from last year written down – this is your starting point from where you build your budget. Don’t forget, if you are VAT registered, you record your sales net of VAT
Think about whether you want to increase your sales in 2020 and were those sales will come from. Some may be repeat sales (but factor in what is going on for your customers as they may be making changes too) and where other sales will come from. Don't forget to consider where you might lose sales too (in other words, is a competitor doing really well?)
This is your next step - are you happy with the percentage of gross profit you make on every sale? Is it high enough? Or is it worth investing more on the direct cost to improve quality?
Overheads and other costs
It’s really easy to let ‘miscellaneous other’ costs build up and drain funds that could be put to much better use elsewhere in your business.
If you haven’t already, set up cost centres and categories for your budget. Then set about reviewing where all of your money goes – ensure you look at the percentages as well as the numbers.
Reality check – you need to be brutal!! Look at where your money is going and whether the outlay brings any value to your business. If there’s little to no value, it has to go!
This is a big one and an area in many businesses where they are haemorrhaging money! It can also be one of the hardest to tackle because other people’s lives are involved.
Do take the time to consider team performance and the return you get from the amount you pay in wages. It may be possible to find more flexible ways to employ people to reduce your costs. One thing to consider here might be performance bonuses – but you need a robust performance management system in place to be able to do this.
There’s a whole host of things to think about when it comes to your office space. It’s a part of your business with a lot of overheads, but it can also generate additional income too.
Don't just think about the rent - consider the utilities, maintenance, service charges and business rates.
Consider how you are using your space too - if you want to expand it might mean you need more space. And if you aren't using your space can you downsize (or sublet, if you own the property)?
Your final set of figures is for contingency. Do not make the fatal error of overlooking this – these are uncertain times and every business need buffers to help them stay afloat if times get hard!
In your contingency pot consider things like fluctuations in exchange rates, reserves in case of emergency and 'float' money which can help you smooth out any seasonal variations.
And don't forget to set aside next year’s tax bill so you don't need to worry about paying it when the time comes.
So that’s it! There is a lot for you to think about here but nailing your numbers in each of these areas will help you create a really solid ‘forward budget’ for the year ahead.
If you’re unsure about anything discussed and would like some support, get in touch and book a budgeting session with our team.