My first ‘Never’ maxims is:
“Never start a new year, or a new business, without a realistic budget. If the expected outcome cannot be expressed in a budget it’s a gamble not a business.”
Over 40 years and thousands of insolvencies we have observed a close relationship between business failure and a refusal to budget.
The start of the financial year is the ideal time to prepare meaningful budgets. Budgets assist in:
- Determining direction
- Forecasting outcomes
- Allocating resources
- Promoting forward thinking
- Turning strategic objectives into practical reality
- Establishing priorities.
- Setting targets in numerical terms
- Providing direction and co-ordination
- Communicating objectives, opportunities and plans various managers
All of these things are functions which failed businesses have usually bypassed. Not all businesses with budgets prosper but most businesses without budgets fail!
What are the elements of a good business budget?
Worrells budgeting principles:
- Realistically reflects external and internal factors…it’s not wishful thinking
- Detailed and comprehensive – all aspects of the business incorporated
- Recognises seasonal fluctuations
- Consults with stakeholders
- Provides for cash flow forecasts
- Allows for ease of comparison to actual
- Reflects the enterprise’s policies and investment criteria
So get to it.