It’s a tough time for business, with the number of UK companies in “critical” financial difficulty expected to rise sharply towards the end of 2023. This means that companies wanting to grow must be extremely careful not to overextend.
Budgeting is therefore a vital part of the business planning process and should not be overlooked. Below we look at how to use smart budgeting strategies to prepare your company for future challenges.
Creating a realistic budget
It’s important to have a clear overview of your income and expenses so as not to obscure the reality of your business. Because if you don’t know what you’re getting into, you’ll make costly mistakes. More than you can afford.
Identify all your revenue sources and use historical performance data to forecast how and when money will come in. Document all your fixed and variable costs to leave room for unlikely one-time expenses. It’s also a good idea to set aside some funds for unexpected expenses.
A common mistake to avoid when making a budget is overestimating your income and underestimating your expenses. Don’t worry about whether the numbers are as good as they could be – realism is very important.
Monitor and adjust your budget
Budgets are not created once and set in stone. They need to be checked regularly. Continually track financial performance against your budget and adjust quickly if necessary. Be sure to communicate your financial performance with stakeholders so that changes to address discrepancies are understood.
Cost control and efficiency
Once you have identified where and what you are spending, you can look for ways to make that spending more efficient. Conducting a cost-benefit analysis can help you evaluate how much benefit you get from certain expenses and identify opportunities for improvement, such as renegotiating contracts with suppliers or asking for better terms.
Technological solutions such as introducing new software to streamline operations can help in this regard. You can also use a labor cost calculator to control and forecast labor costs.
Growth Planning
Growth is well underway, but it’s important to be prepared for when growth happens so you can maintain profits. A well-thought-out growth plan balances immediate needs with long-term strategic investments. Start by defining clear goals based on SMART criteria and allocate resources accordingly.
To achieve organic growth, you may need to secure funding. If so, consider options like loans, grants and investors, and create a business case that clearly communicates how funding will fuel growth. Prioritize investments in areas with the highest potential returns, and track the impact these investments have on business growth.