The importance of building an annual budget
In this week’s blog, our CEO and Founder, Kieran Phelan explores why as a small business owner setting an annual budget is so important to making your business succeed. He discusses the benefits that your business will experience through setting an annual budget, and how the team at Cloud 360 Accounting can act as your digital finance department to help facilitate creating an annual budget.
Why do an annual budget?
The beginning of a fresh year is a great time to think about your annual budget. I personally believe there is real merit in goal setting, but only when it is in action, and you are being held accountable. Setting an annual budget acts as a tangible target and is a real, actionable way to get a handle on your business finances. Through setting appropriate financial targets, you can start to monitor and make progress in your business. Make a time commitment and schedule time across the entire year to keep checking in to see progression.
It is also important to give real thought to your motivations in your business and taking a holistic approach to both your business and personal life. When setting the annual budget, it is more than figures – you must consider how your yearly budget will impact your lifestyle and what it will enable or indeed, restrict you to do. Consider how you define success for yourself and use this to benchmark your plan.
How to set an annual budget?
Setting an annual budget is essentially about looking at the business you already have and looking into the future and the next 12 months. We aren’t talking about Mystic Meg, crystal ball stuff here, you will review your income and your expenditure to build up a financial picture for your business! Here is a breakdown of the steps to get started:
- Take your most recent year as is, review all your existing customers and clients and what they are paying you and if it is likely that this income will repeat itself in the coming 12 months
- Do the same for expenditure, consider things like subscriptions, business development, marketing costs, salaries, office supplies etc. Project how you expect your expenditure categories to play out for the year ahead. This can help decide on new things you plan to spend on and also things you might want to cut back or drop out completely.
- Consider any changes in pricing that might occur in your various expenditure categories and factor this in on a month-to-month basis.
- The budgeting exercise will also help manage the tax process as you will be able to decide how much you should be putting aside each month to help pay your tax bill.
Once this budget has been set, you must review this monthly in case the budget differs vastly from the actual. If things aren’t performing in line with your budget, having the budget alongside regular reviews enables you to get a grasp on things before they get out of control.
Why do we recommend you implement an annual budgeting process for your business?
We like to do as we say with our clients, so that we walk the walk and not just talk the talk!
We set a budget for our business every January, without fail.
Our company is based on a number of principles namely, helping clients make more money, save time, have better systems and giving them peace of mind. This annual budget exercise will ensure you are starting the year in best way to help nurture your business in whatever way you want.
If you would like to create your own annual budget or work with us please contact us today for a discovery call to see how we can help you.