Telling the truth about SME life today

10 steps to better budgeting

Share on facebook
Share on twitter
Share on linkedin
Share on email

With a careful and efficient planning process, you’ll set a much clearer picture of where your business is heading, knowing what to do at each stage to hit and exceed targets and how to react if they’re missed.

Here are tips on making your budgets more robust, realistic and valuable.

1) Get everyone involved

It’s a common place misconception that your finance team puts a budget together. A business plan and its budget should be produced by the collective planning and thinking of the whole management team. All members of a board or management group should feel equally responsible for, and spend an equal amount of time, on the planning process.

2) Set the company’s goals

From the very beginning, agree what the overall financial targets for the company should look like. Department heads should break these goals down, building their budgets up from the current year-to-date base. This “ball-park planning” speeds up the process and avoids unrealistic sales plans, “empire building” or under-achieving forecasts.

3) Build a flexible budget

There’s nothing more frustrating than having to re-build a budget for every scenario. By building a flexible model with a bank of adjustable detailed assumptions, you’ll build a far more robust budget capable of adapting for both conservative and ambitious levels of confidence. Flexible budget models allow you to quickly adjust and re-forecast throughout the year.

4) Presentation is key

Most people’s eyes blur up when they see more than ten figures on a page. Use lots of colour, different font sizes and formatting. Bring your budget alive with charts, diagrams and pictures which show trends, proportions, structures and comparisons to previous years and future forecasts.

5) Use summaries with drill-down

Show key annual information on a summary spreadsheet page: headline income, costs of sale, expenditures, headcount and capital expenditure, each with comparisons. Behind the overview rests successive levels of detail down to the most granular budget assumption, such as training or travel allowances per head. These should be available for drill-down to satisfy any review and to help make rapid decisions during the year.

6) Keep it simple 

It’s easier to understand a budget by using a system of layered spreadsheets linked to a number of assumptions, rather than long complicated formulae hidden in cells in one massive spreadsheet which nobody can find and, when they do, they can’t understand.

7) Build an integrated model that works

Spend time building a robust, integrated model at the outset linking your profit and loss, cash flow and balance sheet. This is essential to be able to stress test your budget and cash flow. You’ll need to see the impact of each revenue, cost and investment assumption.

8) Save time and learn useful Excel features

Use labour-saving formulae and features in Excel. MIN and MAX for cash flows, IRR for internal rates of return, IF statements for variables, Pivot Tables for analysis, Names to describe the meaning of a formula, Views for different users, and LookUp for linked data.

9) Version control

Keep a tight hold of each version with its assumptions which drive the headline figures for revenue, margin, overheads, profit, cash, headcount, capital expenditure and net assets. This will avoid confusion and steer a fast course to the optimal plan which everyone signs up to.

10) Make your budget SMART

That’s Specific Measureable Achievable Results-oriented and Time-scaled, by the way. Your business and each of your departments should end up with a SMART budget with a clear map of the financial measures and targets that you intend to achieve as a business over the budget period, with staging posts marked out for key operating and investment decisions.

Robert Murphy is an experienced finance director with My Business FD, which offers high-calibre finance directors to ambitious smaller and growing companies on a part time, flexible and affordable basis. Tel: 0207 717 5254 or 



Share on facebook
Share on twitter
Share on linkedin
Share on email

Related Stories


If you enjoyed this article,
why not join our newsletter?

We promise only quality content, tailored to suit what our readers like to see!