The pandemic highlighted that many business owners didn’t have a strong enough budgeting plan and were left to struggle during the unexpected crisis.
Without proper planning, the financial impact proved too much, and businesses had to close their doors.
Figures from the Office for National Statistics showed that 100,835 businesses closed in Q3 2021 due to the COVID-19 pandemic and the stopping of Government support.
To guard yourself against any future problems, you need to know how to forecast, budget and plan effectively. Here’s how to approach it.
Planning your business budget
Statistics show that 20% of businesses in the UK fail within the first year, with a 60% failure rate happening within the first five years.
From the very beginning, any business should create a budget as part of its business plan.
A budget can help a new (or existing) business in numerous ways. Firstly, a budget can help determine if your costs are essential or optional. You don’t want to fall into the trap of spending money on optional costs, which could affect your basic operations.
A budget will give you a clear picture of your finances and help you plan how and when to spend money without damaging your bottom line.
Budgeting will also help you spot any areas and expenses draining your money, allowing you to evaluate spending patterns and refocus on any pitfalls.
To create a budget, you’ll need to estimate any monthly fixed costs. These will be utility bills, rent and insurance.
Next, you’ll need to determine variable expenses. This can be tricky, but you should be able to get some idea of how much staffing or supplies will cost if you look back on previous spending patterns.
Plan budget reviews, keep track of your spending, and compare it to your estimated costs. This is also a good way of setting up an emergency fund just in case equipment breaks or you run into a quiet period.
Forecasting
Forecasting and budgeting go hand in hand. Looking ahead and planning for your business based on industry trends and previous financial data will help you allocate resources and plan strategically.
Again, with forecasting, you can try and predict times in your financial year when you may need to spend a little more.
These could be times when you know business will increase. For example, hospitality and retail businesses tend to have a boom in trade nearing Christmas.
The best way to start a forecast is by doing your research into your chosen market. Analyse your competition, and see when they perform well and when performance dips on a month-by-month basis.
This can also apply to your services on a wider scale. Check to see if your product is seasonal, and if it is, you can estimate which months it’ll be in higher demand.
By having all of this information, you can estimate how much money you will be making, which can help you plan to set some aside for taxes or loan repayments.
With a realistic forecast, you can build it towards a pitch to investors if you’ve identified a time in the coming year where you may need further funding.
Get in touch
As mentioned, having a budget and a forecast can make the difference between your business being profitable or having to close prematurely.
The team at PBA can help you build a budget and forecast with its business planning or tax planning services.
Contact us for more information.