Budgeting and forecasting are essential skills for small business owners. They help you plan your finances, track your performance, and make informed decisions. But how can you budget and forecast effectively for your small business? Here are some tips and tools to help you get started.
Before you create a budget or a forecast, you need to define your goals and objectives. What are you trying to achieve with your small business? How do you measure your success? How do you align your financial plans with your strategic vision? Your goals should be SMART: specific, measurable, achievable, relevant, and time-bound. They should also be realistic and based on your current situation and market conditions.
Small businesses have several options for budgeting and forecasting, such as incremental, zero-based, rolling, and scenario methods. Incremental budgeting adjusts the previous year's budget or actual results for inflation, growth, or other factors. Zero-based budgeting requires you to justify every expense and revenue item based on your goals and priorities. Rolling budgets update regularly, usually monthly or quarterly. Scenario budgets create multiple budgets or forecasts based on different assumptions and scenarios. When selecting a method, you should consider your business size, complexity, and industry, as well as the time and resources needed to implement and maintain it.
You don't have to budget and forecast manually when there are many tools and software available that can help you automate and simplify the process. With these tools, you can save time and avoid errors by using templates, formulas, and data integration. Moreover, you can create visual reports and dashboards that showcase your key metrics and indicators. You can also collaborate and share your budget or forecast with your team, partners, or investors. Furthermore, you can analyze and compare your budget or forecast with your actual results to identify variances and trends. Examples of budgeting and forecasting tools for small businesses are QuickBooks, FreshBooks, Xero, PlanGuru, and Futrli.
In my experience it is important to align your budget model one to one with your accounting so that you can compare and see the variances clearly. Also programs which let you drill down is very helpful. Some programs let you drill down for actuals but not for budget.
Your budget and forecast are not set in stone. They are dynamic and flexible documents that need to be reviewed and adjusted regularly. You should monitor your actual results and compare them with your budget or forecast. You should also track your progress towards your goals and evaluate your performance. If there are any significant changes or deviations, you should update your budget or forecast accordingly. You should also seek feedback and input from your stakeholders and incorporate their suggestions and insights.
Budgeting and forecasting are not only about numbers. They are also about learning and improving. You should use your budget or forecast as a tool to identify your strengths and weaknesses, opportunities and threats, and risks and challenges. You should also use them to test your assumptions and hypotheses, experiment with different strategies and tactics, and optimize your processes and systems. By learning from your budget or forecast, you can improve your decision-making, problem-solving, and innovation skills.
Budgeting and forecasting are not easy, but they are worth it. They can help you grow and succeed as a small business owner. By following these tips and tools, you can budget and forecast effectively for your small business.