To be an effective management tool, your new year budget needs to reflect your overall business goals.
As a business owner, you may face challenges creating a 2017 budget that properly addresses a myriad of needs if you have limited funds. Corporations spend an average of four months and 20 to 30 percent of executives’ time on creating a budget, according to the American Management Association. It can simply take too much time, be too expensive and use too many resources. While your new year budget is meant to be a useful and effective management tool, such a lengthy process can also prevent you from responding to market changes. Here are five new year budget tips to help you accomplish your business objectives:
1. Ask the Right Questions
Many companies approach new year budgeting as a long, exhausting task, but it doesn’t have to be that way. According to Deloitte, a best practice in budgeting is to ask the right questions first. These include, “Where are we headed?” and “How will we get there?” Also, if your budgeting process always feels cumbersome and automatic, try something different this year.
2. Forecast a Few Years Ahead
Forecast out the answers to your questions for one to three years. This can help you identify any new initiatives, personnel or equipment you need. New costs that will be incurred should be reflected in your upcoming annual budget. This process also helps you plan for expansion and innovation.
3. Consider New Technology
As a business owner, it’s wise to be in the know of the innovation and technology that’s available in your industry. Updated systems can help you retain customers, deliver better products and services and streamline finance activities. Reading trade journals and attending industry training sessions can help you be aware of what’s available to expand or improve your business.
4. Plan for Innovation
To effectively incorporate innovation, you need to plan for it. For example, if you’re a retailer, you may want to invest in beacon technology. Or, if you’re a manufacturer, you may want to invest in additional automation. Determine what’s best for your business and incorporate any associated costs into your annual budget. This can help you determine if you can pay for items in one year or over multiple years, and if you need to buy or lease items. For example, using software as a service (SaaS) is primarily a pay-as-you-go alternative to purchasing software outright.
5. Overestimate Expenses
If you don’t have a complete understanding of what your costs are for new equipment, personnel or projects that vary in scope, it’s typically best to overestimate your expenses. Otherwise, you may not allocate sufficient funds to cover these expenses, which could cause you to take on debt at higher interest rates because the need was unexpected, and therefore, last minute. If your goal is to increase your margins or reduce your interest expense, factor the associated cost cutting into your budget.
Remember, your new year budget is a planning tool that should reflect your business’ long-term goals. For it to be effective, you should refer to your budget on a regular basis, track your progress and make adjustments. That way, you can maximize the benefits of budgeting.