• Zoe

The problem with not budgeting

Updated: Sep 26, 2019

I recently attended a workshop on the other side of Bristol, somewhere I hadn't been before. If I'd just set off and driven, I could have easily missed a turning which would have resulted in a two hour detour, I could have been held up because of a road closure I wasn't expecting, but I didn't just get in the car and drive. I checked the address for the venue, I checked where I'd need to park, and I had a look at Google Maps before I set off to be sure I knew where I was going. I expect that's what you'd do too.

So what do you do when running your business. Do you have a strategy? An idea of who your customers are? What your products and services are? Goals for the year? It's unlikely you just got started and hoped for the best, but with business finances, often that's exactly what happens.

It's unlikely you started your business and just hoped for the best, but with finances that's often exactly what happens

Business owners ask us all the time, how they can make more profit, where they should be cutting costs and I tell them that if they set goals (or budgets) for income and expenditure that they stick to and monitor every single month, they'll soon have a handle on exactly whether their finances are helping them work towards the goals they have for their business. Budgeting really puts business owners in control, and here are the main problems we see when business owners fail to budget.

The risk you won't be able to cover your costs

If you as a business owner don't set a budget, you're left open to the risks of not expecting (or even worse) not being able to pay a crucial bill, just like if you don't budget for your household spending. Your business likely has a number of regular commitments, salaries, rent, insurance, phone bills, utilities, software costs, and if you failed to pay one of these, you could find yourself losing something you rely on to run your business like your staff or premises.

The inability to plan for the future

But even if you're comfortably covering all of those things each month, what you'll be finding less comfortable without a budget is that you'll never really know exactly where your money is coming from or where it's going, meaning you might invest your time and energy in activities which aren't important for the business, which aren't profitable, or you might be unable to take up opportunities which could be open to you if you were absolutely sure of your financial standing and if a particular opportunity was worthwhile. Let's say for example, an opportunity came up for you to take up some more office or studio space which would allow you to take on another member of staff. Without knowing for certain whether the income from that extra employee would make the extra rental cost worthwhile, how could you decide what to do?

You'll find it difficult to access funding

Whether you're actively seeking investment or just hoping to take up one of the many small business grants which are available, having a short and long term budget will be crucial in being able to secure that funding or even for you to work out whether you should consider applying. I recently found out about a grant to small businesses to support them with paying for training and coaching costs. Businesses were able to claim back £1,000 in grant funding provided they committed to spending £2,000 although the claim couldn't be made retrospectively. This was a perfect example of how if you hadn't taken the time to sit down and plan ahead, you might miss the opportunity because you might not know how much money you wanted to commit to training in the future.

So, why budget?

Having a well thought out budget will allow you and your business to plan your finances for the months and years ahead and to give you something to monitor every month. By monitoring how things are going every single month, you can review your business's profitability, the assumptions you're making about everything from sales volumes to office costs, and it will give you the opportunity to think about how you will allocate your costs and how to plan your funding. Being armed with the story of where you are headed helps you make decisions which are in line with your financial goals, not to get distracted along the way by things which will take you away from your goals, and will help you bring the business back on track quickly if spending goes astray. Things change, opportunities change and the great thing about budgeting is that things can be changed and flex when you need them to.

We've worked with our clients to develop a budgeting and management reporting package which really helps small businesses understand their finances and to work towards their financial goals. If you'd like to talk to us about how we can help you with building a budget for your business, take a look at the services we offer growing businesses or get in touch for more information.

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