The Ultimate Budgeting Basics Guide for Small Business Owners

The Ultimate

Budgeting Basics Guide for Small Business Owners

Budgeting tips, tricks and hacks to help small business owners safely navigate budgeting without drowning.

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Charting the financial course for any organisation is a crucial task. For nonfinance captains at the helm, diving into budgeting can feel like venturing into uncharted waters.

For non-finance managers and business owners, understanding the basics can seem daunting, but it's essential for making informed decisions, and the success of your business relies upon it.

Let this nautical guide help you stay on course!

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Your Top Tips, Tricks and Hacks to Budgeting Understand the Importance of a Budget What actually is a budget and why is it important to you? When you see it’s worth, you can use it as: A Planning Tool - It helps you predict incoming revenue and plan expenses.

A Performance Measure - Compare your actuals against the budget, like checking your ship's position with the stars.

A Control Mechanism - It ensures you don’t overspend.

Top Tip : Become familiar with the uses of a budget, so you see how it fits within your role and business.

Learn the Language of the Seas Knowing the basic language of finance will ensure you are able to communicate effectively with your finance department or book keeper. Here’s some of the terminology to get used to: Revenue - The money coming in.

Expenses - The money going out.

Profit - Revenue minus expenses.

Fixed or Indirect costs - Costs that don’t change regardless of your activity (e.g., rent). Indirect costs are also commonly called overheads.

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Variable or Direct costs - Costs that change depending on your activity (e.g., raw materials). Direct costs are also known as cost of goods/services.

Top Tip : Go through your accounts and familiarise yourself with what spend areas are Fixed, Variable, and Direct Costs.

Gather Historical Data Historical information helps you to understand trends for example: Seasonality and fluctuations in sales month on month.

Growth trends.

Risks that regularly occur.

Trends in profitability and cash flow.

Top Tip: Before starting, review past budgets and actuals. This gives a base for your predictions. Use the different areas in No.2 to help you identify what to look out for.

Predicting Revenue You need to predict revenue in order to plan for the future, and the businesses growth and sustainability. Make sure you consider: Past performance: Look at the revenue trends over the last few years.

Market conditions: Keep an eye on market conditions, maritime reports (industry trends), and rival fleet movements.

Crew’s insights: If applicable, gather input from key crew members or sales department.

Future Goals: What the business needs to be profitable and grow.

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Top Tip: Once you understand your revenue predictions ensure this information is shared so your marketing and sales teams know what they need to achieve, as well as make necessary strategic decisions to meet the prediction.

List Down Expected Expenses This is the ultimate way to ensure you do not have shortfalls and you can adapt accordingly. Consider: Fixed Costs or Overheads: Include costs like salaries, rent, utilities.

Variable or Direct Costs: Consider costs related to production or service delivery.

One-off expenses: Any irregular costs expected for the year e.g., equipment purchase or a repair bills for a damaged sail Top Tip: Regularly review expenses, use the budgeting process to ask yourself if you need this expense and can you get the same value cheaper elsewhere?

Stock Up on Cash Having a safety buffer is like having a lifeboat. In business, storms can be unpredictable, and unexpected expenses happen. Add a safety buffer (like a pod of whales) of 5-10% of total costs for unforeseen expenses.

Top Tip: If you don’t need to spend the safety buffer one month then set the cash aside for it and watch your fund grow over time.

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Get Input from Different Departments Every department or function has its expenses whether you are a small business or much larger. Consult the right people to understand future expenditure. Typically you would need to involve: Managing Director Finance Manager/Book Keeper Department Heads Top Tip: Consider everything and ask each person to submit their requirements or key info.

Prioritise Expenditures If you foresee expenses exceeding revenue, prioritise essential costs and delay or cut back non-essential items. Focus on keeping the ship afloat.

Top Tip: Arrange a group discussion to look at A - must have, B could have and C - optional expenses and decide on the value each one will bring to your business, and if you need it. Remember to allow expenditure for investment or growth though!

Document your assumptions Every budget is based on assumptions (e.g., expected sales volume, inflation rate). Document them so you can revisit and remember where your numbers came from.

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Top Tip: Review all your assumptions once you have finished your budgeting process as some may have changed or need amending.

Regularly Review & Adjust A budget isn’t static. Review it each month by comparing it to your management accounts to ensure you’re on track and adjust if needed with a re-forecast.

Top Tip: Reforecast at least 6 months into your financial year.

Review the assumptions that you made before and see if they are still all valid.

Communicate with all departments A well-informed crew sails smoother seas and clear communication helps in efficient execution. Make sure that all your departments are aware of what their budget is, and not just the department heads.

Top Tip: Share your business plan and goals with everyone in the business so that you all know what you are aiming for.

Seek Guidance from Experts Budgeting can be a very daunting task and as much as a well set budget can motivate your team, a poorly set budget can demotivate your team, as well as aid bad decision making and poor investments.

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Top Tip: If you're unsure where to start with budgeting or need some advice, don’t hesitate to consult with Beluga Finance Solutions.

Reflect and Learn At the end of the period, compare your budgeted figures with actuals. This will provide insights for future budgeting/forecasts.

Top Tip: Compare your management accounts to your budget each month to track your success and identify any over spends early.

Finally, remember that profit does not always turn into cash. Make sure that you have a cash flow forecast to go with your budget.

Budgeting is like navigating – it requires a balance between understanding the seas (data analysis) and the instinct of a seasoned sailor (business intuition).

Over time, as you get more familiar with the process, you'll become more efficient and accurate in your predictions.

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Want to know more?

Book a free Business Accounts Clarity Call today!

Here’s what will happen: Discuss the current situation.

Understand your gaps Recommendations to get your budgets in good shape

Call Elaine on 01329 729059 or email elaine@belugafinance.co.uk

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