I am surprised by how many ambitious businesses don’t prepare a detailed budget each year. In our experience unless you have a roadmap you are unlikely to reach your planned destination.
We like to see an annual budget built on a clear strategy as part of a three or five-year plan. It is essential to have a clearly defined annual budgeting process which starts several months before the year end and be completed at least a month before the start of the new financial year.
The process should involve all senior executives and heads of department so there is clear accountability and awareness. The final budget document should contain both income and expenditure forecasts for each business line or department. The budget will then be the plan by which the business is guided during the year.
There are times when the numbers might need reviewing. The impact of Covid is a classic example of how external influences will necessitate a re-examination and adjustment of all plans. However, without a plan in the first place it is hard to identify what these changes might be and the impact on the bottom line.
One of the first tasks, when we are appointed as Finance Directors, is to review the existing plans and budgets or to put these in place as soon as possible. Only then can we deliver effective financial management and my advice to all business owners is that setting their budget should be a priority which will help to manage their business effectively, particularly in these difficult times.