My immediate and visceral reaction to a question like this, as a response from the depths of my accountant soul, is to weep tears of disbelief. Yet, this question is often asked. Even by high ranking management members in multi-million pound organisations. I know, because I have been asked this. On numerous occasions.
I could tell you how to put a budget together, but then you wouldn’t use my services to help you construct one (have I mentioned my reasonable rates?). So instead, let me explain to you the reasons that budgets are a must. And this is for personal as well as business uses.
The first thing to realise is that Budgets are not actually that complicated. You probably budget without even realising it. Do you take sandwiches to work instead of buying one at a sandwich shop? Then you are budgeting. If you make a coffee at home rather than buying it at an expensive coffee shop, you are budgeting then too. Sure, accountants would love you to think they are complicated and love to pile them high with jargon (well, it keeps them employed doesn’t it?!) but really, it is not hard at all.
Why have one then? Aren’t they just a waste of paper and time? No. A properly put together budget is a detailed analysis of how a company (or a person) expects to spend money in a future time period. Some budgets are set for the year, or for the month, or even at a week or day level. Whatever time scale you use, what you are doing is predicting what you are going to be spending and when so you can make sure that you have the money available to cover the spend. For example, my car insurance comes up for renewal in May. I know this and therefore I make plans to ensure that there is money available to pay for it. If I didn’t have a budget, then I might forget that the insurance is due and then I might end up going into my overdraft at the bank, and we don’t want that. It is precisely the same for a business.
A budget also provides a limit for your expenditures. I used to spend a lot of time telling the managers I was helping that the budget is not set in concrete, but it does provide a limit for your spending. It is not, under any circumstances a target for spending. Just because you have £500 in the budget line which says “Client Visits” does not mean that you need to aim for spending that amount. If your client is a cheap date and it only costs you £50, then hooray! £450 returns to the pot for use elsewhere. (For example, that new laptop or printer you so desperately require.
If you have a comprehensive and workable budget, it can create a financial road map for future success. In business terms, this means that you can see the amount of profit you are going to achieve if you stick to your expenses, and in personal terms, it can help you realise your ambitions. Like paying off your mortgage early, or taking the world trip you always promised yourself, etc.
So, for me, next to a business plan, the budget is probably the most important document you are ever going to produce in your business administration.
If you think it is time for your business, or you personally, to construct a budget, then please contact me, and we can arrange a consultancy meeting for me to help you.