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How can you identify potential issues with your budget and make adjustments before they become problems?

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As a small business owner, you know how important it is to have a realistic and accurate budget for your operations. A budget helps you plan your expenses, monitor your income, and manage your cash flow. But what if your budget is not working as well as you expected? How can you identify potential issues with your budget and make adjustments before they become problems? Here are some tips to help you review and improve your budget.

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Joshua Bloom

Audit Director | Manufacturing | Not-for-Profit

1 Track your actuals

The first step to identify issues with your budget is to track your actual income and expenses on a regular basis. Compare them to your budgeted figures and see if there are any significant variances. For example, are you spending more than you planned on certain categories, such as marketing, supplies, or utilities? Are you earning less than you projected from your sales, services, or contracts? If so, you need to find out the reasons behind these discrepancies and decide if they are temporary or permanent. Tracking your actuals will also help you spot any errors, omissions, or miscalculations in your budget.

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Joshua Bloom

Audit Director | Manufacturing | Not-for-Profit
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Garbage in, garbage out. You need to have your books in a good spot, otherwise your actual data will not be reliable. Before using actual information, if your books are not clean, spend the time to get them in order or hire a bookkeeper or accountant to assist.

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2 Review your assumptions

The second step to identify issues with your budget is to review your assumptions and projections. A budget is based on certain assumptions about your market, your customers, your competitors, and your costs. These assumptions may change over time due to external or internal factors, such as economic conditions, consumer trends, industry regulations, or operational changes. You need to review your assumptions periodically and see if they are still valid and realistic. For example, are you expecting a steady growth in your revenue, or are you facing a seasonal or cyclical fluctuation? Are you accounting for inflation, interest rates, or exchange rates in your expenses? Are you anticipating any changes in your product mix, pricing strategy, or customer base?

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Joshua Bloom

Audit Director | Manufacturing | Not-for-Profit
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Make sure you accurately document your assumptions so others can understand the budget. Someone else may want to challenge your assumptions to arrive at a an agreeable budget.

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3 Adjust your budget

The third step to identify issues with your budget is to adjust your budget accordingly. Based on your tracking and review of your actuals and assumptions, you may need to make some changes to your budget to reflect the current and expected situation. For example, you may need to increase or decrease your revenue projections, depending on the demand and competition in your market. You may need to cut or reallocate your expenses, depending on your priorities and goals. You may need to revise your cash flow forecast, depending on your collections and payments. Adjusting your budget will help you avoid overspending, underestimating, or missing opportunities.

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4 Plan for contingencies

The fourth step to identify issues with your budget is to plan for contingencies. A budget is a tool, not a rule. It is not meant to be rigid or fixed, but flexible and adaptable. You cannot predict everything that will happen in your business, so you need to have some room for adjustments and surprises. For example, you may face unexpected costs, such as repairs, taxes, or legal fees. You may encounter unexpected income, such as refunds, grants, or bonuses. You may face unexpected events, such as emergencies, delays, or cancellations. Planning for contingencies will help you cope with uncertainty and risk.

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5 Seek feedback and advice

The fifth step to identify issues with your budget is to seek feedback and advice. A budget is not something you should do alone, but with the input and support of others. You can seek feedback and advice from various sources, such as your employees, your customers, your suppliers, your mentors, your peers, or your accountant. They can offer you different perspectives, insights, and suggestions on how to improve your budget. For example, they can help you identify your strengths and weaknesses, your opportunities and threats, your best practices and benchmarks, and your goals and strategies.

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6 Update your budget regularly

The sixth step to identify issues with your budget is to update your budget regularly. A budget is not something you should set and forget, but monitor and modify. You need to update your budget at least once a quarter, or more often if there are significant changes in your business environment or performance. Updating your budget will help you stay on track, measure your progress, and make informed decisions.

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Joshua Bloom

Audit Director | Manufacturing | Not-for-Profit
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At the end of a day, it’s important that we understand why we positive or negative variances on the budget. If we understand WHY these variances occurred, we can work on making the good things recur or eliminating the bad things.

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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How can you identify potential issues with your budget and make adjustments before they become problems?

1

2

3

4

5

6

7

1 Track your actuals

2 Review your assumptions

3 Adjust your budget

4 Plan for contingencies

5 Seek feedback and advice

6 Update your budget regularly

7 Here’s what else to consider

Small Business

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How can you identify potential issues with your budget and make adjustments before they become problems?

1

2

3

4

5

6

7

1 Track your actuals

2 Review your assumptions

3 Adjust your budget

4 Plan for contingencies

5 Seek feedback and advice

6 Update your budget regularly

7 Here’s what else to consider

Small Business

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