A balanced business budget is required to stabilise the financial position of your company. Without one in place, it becomes increasingly difficult to manage cash flow and plan for the future. Before you begin creating one, it pays to understand why such a task is needed.

Why Create a Balanced Budget?

A detailed profit and loss sheet, detailing income, fixed costs and variable expenses, helps visualise company performance and tighten up spending where possible. By creating an accurate template to work from, you’ll not only save money but precious time as well.

The company will also be in a better position to cope with downtimes and seasonal fluctuations, if applicable to your business model. This is the same for companies who offer their goods and services on credit, meaning periods where customers defer payments can also be prepared for.

In addition, the work of your accountant will be made far easier with a balanced budget sheet to review. They’ll be able to advise on the health of your company and conduct tax returns with far more clarity.

Now we’ve looked at why it’s important to create a balanced budget, here’s some tips on how to implement one into your business model.

How to Create a Balanced Budget

It may not be the most exciting task in the world, but devoting time to your bookkeeping can really pay dividends in the long-term. However, it’s not as easy as simple data entry. In addition to knowing the current monthly expenses your business faces, you may also need to make financial forecasts and predict future trends to create the most accurate budget possible.

Say for example your company imports goods from the EU. Increased tariffs may push up these costs after Brexit is finalised in 2019. Prices generally tend to inflate in any case so it’s always best to anticipate higher outgoings, even from domestic suppliers.  

A good way to do this is by analysing income statements from previous years. Compare how expenditure has risen year-on-year, anticipating the same increment taking place again in the next 12 months or so. Increases in operational expenses, such as office rent and utility bills, should also be considered, along with updates to computer systems, internet connections, etc.

Don’t be scared to factor in the likelihood of one-off purchases. Something or other will always crop up, and there’s no harm in treating yourself once in a while either.

Although creating a business budget is something you should look towards doing as soon as possible, it’s also wise to seek the help of a professional accountancy firm. They will help arrange your budget into manageable segments, (i.e. sales budget, fixed asset budget, purchase budget, tax budget, etc), as well as advise on forecasted trends and staying clear of nasty economic downturns.

If you require any specialised help drawing up a balanced business budget, please feel free to contact us here at Neil Smith Accountancy and we’ll be happy to assist.