It’s that time of year when you’re preparing your budgets. You’re collating your data from the current year and starting to think about what lays ahead.

Before you get started, there’s a few things you need to consider to really nail your budgeting process. We share our top tips for budgeting for the new financial year.

THINK BEYOND ONE YEAR

The first thing you need to consider in your budgeting is that it’s not just about creating a budget for one year. While you will absolutely create a hard budget for the year ahead, it’s also important to create forecasts or estimates for one to two years beyond this. This helps to see where the business is headed.

Most business cycles are more than a single year. Also factoring in the time that it can take to develop apps and the like, there isn’t a lot of value in only focusing on one year.

If you have a $1 million business today and want to grow that to a $10 million business, you need to plan that out in more than single year blocks. Think about your longer term plans and what you’ll need to deliver on those plans. Then you can budget in a more effective way. 

START WITH REFLECTION

Budget time is also the perfect time to reflect on your business model, products and market fit. If you’re not where you need to be, it’s crucial to consider what you’ll need to change or improve to fuel your growth.

Even if your business is growing, it’s a good time to think about the initiatives that you need to budget for in the coming year. Do you want to increase your sales force? Refine your processes? Build a better back office? Invest in branding? Bring together marketing, finance, operations, customer service and product teams so everyone in the business buys in to what you’re trying to achieve for the year.

Then it’s a matter of attaching numbers in the form of revenue targets and costs to what you’re planning You’re not just setting a fiscal budget. You’re setting a plan with a direction and then quantifying what thet means in terms of a P&L and balance sheet.

BUDGET VS FORECAST

It’s also good at this point to understand the difference between a budget and a forecast. The budget is the expectation for the year that is set prior to the start of the financial year. The forecast is generally updated quarterly and helps you to track how closely you think you will track against your budget.

A forecast helps you to manage cash flow and commercial decisions throughout the year against your budget expectations. As you progress through the year you can compare actuals against your budget and then update your forecasts based on this. 

BUDGETING IN A POST-COVID CLIMATE

The last few years have been quite rocky and unlike anything we’ve seen before. Coming into the new financial year, it’s a balancing act between the positivity of recovery and then managing the risk of future impacts. 

You need to look at your own business and the market within which you operate to determine how much risk you should factor into your budget planning.

In light of rising inflation, now is also the time to reviewing your pricing. Consider how much your costs will increase and how this might affect your margins. 

A SEAMLESS BUDGETING PROCESS

With an outsourced finance service, you can trust that your budget is in good hands. At Vital Addition that’s what we do for our clients. We run the process from end to end to ensure your budget and forecasts are appropriate for your business and market to support your growth. We also help you to revisit your budget and revise your forecasts to ensure you stay on track throughout the whole year.

Contact us to discuss your budgeting needs and how we can support your business.