Staying on top of your finances is vital if you want your business to succeed. Read our handy hints on controlling your budget.
- Make sure the budget you have prepared includes all the key indicators you wish to control.
- Use budgeting software to set realistic budgets based on historical data.
- Give responsibility for budget items only to individuals with the authority to control the outcome.
- Schedule regular reviews of budget performance.
- Review budgeted figures to identify cash flow or other problems which can be anticipated and tackled in advance.
- Use your software's exception reporting and alerts to flag potential issues.
- Compare margins, working capital and other key ratios with historical figures to identify how performance is expected to improve or deteriorate.
- Carry out a sensitivity analysis to see what effect different outcomes could have on performance.
- Focus on controlling items which could have a significant effect on overall business performance. For example, reducing waste, eliminating unnecessary spending, monitoring overtime or focussing sales efforts on the targets most likely to convert to profitable business.
- As figures become available, compare actual sales to budget and identify reasons for this sales variance.
- Determine how fixed costs differed from budget and whether any changes are likely to be permanent such as increases to the minimum wage.
- Analyse the extent to which variances in variable costs reflect sales variances, or whether prices or efficiency have changed.
- Identify to what extent variances in income or expenditure reflect differences in timing rather than performance.
- Take action to sort out underperformance or excessive expenditure which can be controlled.
- Capitalise on unexpected favourable changes.
- Revise future budgets in the light of the most up-to-date information.