March 20 , 2024
Budget projections are to be viewed as a tool, not a chore, although they may feel boring at times. Budget projections increase revenue and cut spending costs to improve business strategy. Still, only 54% of small businesses have an official budget, leaving almost half of them without a tool to evaluate performance and properly plan their future. So, you went to kindergarten, and you know how the alphabet works, but we should go back to ensure you have it down in terms of budgets.
A budget is a statement of expected sales volume, operational production capacity, revenue, and profit stream. Creating a budget is a lot like setting a goal because the budget serves as a motivating factor by outlining expectations for future growth. Think of a personal budget; you have expenses like rent, laundry, utilities, groceries, gas, etc. You budget this by how much your paycheck amounts to and anticipate these expenses. A business is the same way; the only difference is the scale, with many more moving parts and significantly bigger dollar amounts. Budget forecasts are outlined by considering sales revenue, volume, anticipated costs, and profit contributions or margins. They also consider factors like historical data or patterns of your organization, statistical analysis, expert opinion, and other factors that would encompass inclusiveness for greater accuracy. Forecasts are the most helpful when you can use them to identifying trends and patterns based on current data.
For example, a printing company may be constrained by capacity because they can only print so much in a 24-hour time frame. Breaking down your budget monthly makes it easier to digest and forecast incremental growth that needs to be made by considering how many more hours we can run the machines. Can we reduce downtime for a service? Do we need to buy another machine? These are all the moving parts that make a business budget more complex than a personal budget.
A budget projection is like an umbrella or overarching goal, and the budget forecast details how to achieve that overarching goal. A budget projection is the action plan. A budget is the ‘what,’ and a forecast is your expectations from the budget or the ‘how.’ A budget forecast is a lot like forecasting the weather, you can’t necessarily motivate the weather, but you can prepare for it. A forecast allows predictions about probable future events that indicate growth or potential expectations from the marketplace. The benefits of frequently creating a budget forecast are that the more you do them, the more data you have to carry out your budget projection. It allows risk assessments to be made to eliminate being blind-sighted by costs so you can better avoid potential crises.
A budget for a business evaluates the momentum of both positive and negative things that are happening based on historical numbers, as income comes from many different places and is not as consistent as every other week’s paycheck. A budget coordinates efforts across the organization to optimize the allocation of scarce resources to achieve objectives. A budget motivates growth and tremendous success within your business. We want to see your company grow and learn from past mistakes by comparing your expectations with reality. C-Level Strategy has a team to help you compile and better utilize your budget to reach your highest potential as a company. Using this budget to your advantage is like wearing pads in a game of football; you’re going to get a lot farther and be less likely to get hurt if you have protection, unlike the other team playing without them. Those guys are playing rugby without pads on. So don’t play rugby on a football field; take advantage of your budget and use it to improve.
