A well-crafted business budget is essential for financial stability and informed decision-making in any organisation, small or large.
In this guide, we’ll explore the critical role of budgeting in managing your business’ finances and offer practical tips on how to create a business budget that aligns with your goals. You’ll learn how Octet’s working capital finance expertise can enhance your budgeting strategies, providing the cash flow support and tools to ensure your business thrives.
Why create a business budget
Financial coach, accountant and Healthy Business Finances founder Stacey Price^ has helped many businesses over her 20-plus years of practice. She’s often asked how to create a business budget and says a budget provides the structure every business needs.
“People think if there’s money in the bank, then the business must be doing okay, so they spend that money. Then they get hit with an unexpected ATO bill or a stock purchase invoice, and there’s no money to pay. It’s a slippery slope to cash flow disaster.”
Adhering to a well-structured business budget can stop that from happening. “A budget is like a GPS when travelling. It outlines your income goals and expense restrictions so your overall financial objectives are met. It guides you in the right direction and helps you make decisions about where to spend.”
A well-crafted budget allows businesses to:
- set clear and measurable financial goals, which can guide your business growth strategy
- facilitate better decision-making regarding investments, cost-cutting measures and growth opportunities
- secure financing from banks, financiers and investors, which often require a clear budget to evaluate the financial health of a business.
A word about budgeting and forecasting
It’s important to distinguish between a budget, which outlines how much revenue a business expects to generate against its various expenses and a business forecast. A forecast is another essential business tool that estimates future financial outcomes based on historical data, current trends, and anticipated market changes.
How to prepare a business budget
Here are some practical tips to guide you through the process:
Begin by defining your short- and long-term objectives. These will inform how you allocate resources in your budget.
Identify costs:
Categorise your expenses into fixed costs (such as rent) and variable costs (such as utilities). Stacey says it’s also vital to identify non-essential costs (such as subscriptions and training in some cases) and essential costs (such as rent and salaries). “Essential costs are those that if you switched off tomorrow, you could not deliver your product or service. Non-essential costs are beneficial but not crucial. This distinction helps in understanding where you need consistent funding.”
Account for seasonal fluctuations:
If your business experiences seasonal variations in sales due to periods such as Christmas, or as a result of the fluctuating availability of stock or raw materials, adjust your budget to accommodate these changes.
Monitor cash flow closely:
Regularly track the inflow and outflow of cash to maintain a healthy cash position and prevent disruptive shortfalls. Monitor payment cycles, and consider negotiating better terms with suppliers or clients to ensure a more steady cash flow.
Plan for contingencies:
Set aside a portion of your budget for unexpected expenses or emergencies and factor in potential increases in fixed costs, such as rising rents. A contingency fund ensures your business can handle unforeseen challenges without disrupting operations.
Review and adjust regularly:
Monitor your cash flow to ensure you can meet your obligations. Then, review and adjust your budget regularly to compare actual performance against projections.
Use budgeting tools:
Leverage financial tools and business budget templates to streamline the budgeting process. Templates, such as those available from trusted sources like business.gov.au, software and tools can help you track expenses, improve cash flow, and manage different budget categories efficiently.
“When we discuss budgets with clients, we take a bottom-up approach,” says Stacey. “So we ask clients what their financial goals are for their business. We then look at the expenses. The income is the missing piece of the puzzle to make it all work.”
Working capital solutions: a smart budgeting decision
Securing financing is critical for most businesses, and you’ll need a well-prepared business budget to do this. “If you have some solid financials behind you and a business budget showing projected cash flow and profit, this will always work in your favour with banks and financiers,” says Stacey.
Even with a solid budget in place, maintaining financial stability especially when faced with fluctuating cash flow, can be challenging. By leveraging Octet’s range of working capital solutions, businesses can better manage their cash flow gaps and maintain financial stability. Here’s how Octet can help:
- Bridge cash flow gaps: Even with careful budgeting, there are times when cash inflows may not align with outflows. Our working capital solutions provide the necessary funds to cover expenses during lean periods, ensuring your business stays on track.
- Enable strategic growth: A strong budget outlines growth goals but achieving them often requires additional funding. Octet’s solutions support growth initiatives by providing flexible financing options that don’t disrupt daily operations and can work in conjunction with any existing bank facilities.
- Customised to fit your budget: Every business has unique budgeting needs. Octet’s working capital solutions can be tailored to align with your financial goals and cash flow management strategies, enhancing your ability to adapt to changing circumstances.
Octet provides the solutions, including our Debtor Finance (also known as Invoice Finance) and Trade Finance facilities, to help your business manage cash flow, optimise spending, and plan for growth. When combined with effective budgeting practices, our finance solutions ensure your business is well-positioned to thrive.
A financial partner you can trust
Creating and maintaining a business budget is not just about numbers — it’s about planning for growth, making informed decisions and securing the financial health of your business.
By partnering with Octet, you can access expert financial solutions that help you stick to your budget and achieve your business goals. Get in touch with one of our working capital experts to find out more today.
^ Stacey Price is a financial coach, accountant and founder of Healthy Business Finances. Stacey specialises in financial coaching, management accounting, and cloud accounting training for business owners and entrepreneurs.
Disclaimer: These comments are only our views and should not be construed as advice. You should act using your own information and judgment. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy, and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgment as at the date of publication and are subject to change without notice.
