Updating your 2021 business budgets in advance is of vital importance. It’s quite underrated when it comes to your business having a successful year.
With how 2020 has passed, here’s some reasons why you should revisit your 2021 business budget. Here you will also find some helpful tips on what you should keep in mind when creating one.
What is a budget? A budget is an estimation of your revenue and expenditure, or your cash inflows and cash outflows over a period of time.
The bottom line: During the year 2020 many businesses were greatly impacted due to lack of budgeted cash inflows and unbudgeted cash outflows.
Therefore it is important to have an updated budget to avoid for such sudden shocks in the future.
As per clutch, 61% of small businesses did not create budgets, however most of the small businesses that created a budget stuck to it, and avoided overspending.
It is very important that business update their –
- Short term budget, and
- Long term budget.
Many business owners currently focus on having a short term budget in order to meet the short term requirements, & loose focus of the long term picture. Having a long term budget laid in is equally important.
When creating a long-term budget it is important to take into consideration the uncertainties. For example, some of your customers might not be able to pay you on time or even worse run out of business. We have already seen many large businesses close down in recent times.
- Make sure your budget is flexible– As soon as new information emerges, that might have an impact on the inflow and outflows of cash, the budget must be revised. It will be a good idea to decide in advance on how often the budgets will be revised.The frequency of the revision of budgets will vary from industry to industry.
- Start with your previous years income and expenses– If you are not sure how to start creating your budget, looking into your previous year income and expenditure will be a good starting point. You can adjust from there, based on how you believe your budgeted period is going to be.
- You do not need expensive accounting softwares– Maintaining a simple spreadsheet at the very least will go a long way. You would be surprised to know that even now many large corporations create their budgets on Excel. You can also use some apps that will be budget friendly.
- Use estimates- Don’t spend too much time trying to perfect the budget, it is impossible to narrow your expenses down to the exact decimal. Use estimates based on your past experience.
- Budget for the unexpected- 2020 is a great lesson to be learnt from. Many businesses went down because they had not budgeted for having some resources (like, cash) available when things don’t go as planned.
- Track the budget – It is important not just to budget, but also to see if you have stuck to it. If you have not, you should analyze your what were the areas that went off. See if this was an area where the expense was to be controlled, or an error in the budget. Then make sure that the budget is needed.
- Verify if it is hand in hand with the business plans – An important objective of having a budget is to make sure that there are sufficient resources to support the business plan.