When to Start Your Annual Budgeting Process

Most business owners are tasked with creating a budget for the upcoming year. But when you wait till the last possible minute, you can easily end up with a rushed plan, overlooked expenses, and severely missed opportunities. As 2024 approaches, start curating the perfect annual budget to keep your business in line.

When Should I Create My Business Budget Plan?

For most businesses, a good rule of thumb is starting your budget planning at the end of Q3. With this schedule, you still have a good three to four months of recording all necessary information, setting financial goals, making projections for unexpected costs and more, receiving feedback, and finalizing plans. And this is a great opportunity to take a look at your current revenue and expenses for this calendar year and what goals you’ve achieved.

The Problem of Waiting Too Long to Create Your Annual Budget

Stalling on your budget planning can have significant effects. To start, it leads to a lack of direction and clarity. Without a budget in place, business owners are unable to set realistic goals, allocate resources effectively, and make informed decisions about investments, expenditures, and hiring. This can result in a disorganized and reactive approach to financial management, creating missed opportunities and potential financial crises.

Plus, delayed budget creation can hinder strategic decision-making. A well-thought-out budget serves as a roadmap for the business, enabling owners to align their resources with their long-term objectives. By postponing the budgeting process, your business may lose sight of its strategic priorities and fail to allocate funds to critical areas, such as marketing, research and development, or employee training. This lack of strategic focus can impede growth and put your business at a competitive disadvantage.

And finally, delayed budget creation can seriously affect stakeholder confidence. Investors, lenders, and shareholders often rely on budgets as a measure of the company’s financial health and viability. When business owners procrastinate in developing a budget, it raises concerns about their ability to manage the business effectively and meet financial commitments. This lack of transparency and proactive financial planning can lead to a loss of trust and may impact your business’s ability to secure funding or attract investment.

Unsure whether your budget is on track for the year? Read our comprehensive guide on budgeting for your business.

How to Budget For Your Business

An Overview of the Business Planning and Budgeting Process

By taking a closer look at the budget planning process, you can better determine where to start when planning your 2024 budget:

1. Reflecting on Your Past Performance

As you formulate a new yearly budget, taking a deep dive into your past performance is a valuable exercise. During this stage, you can learn from past successes and failures, identify trends, and make informed decisions about resource allocation and goal setting. Here are a few key steps you can take:

Review Financial Statements – Begin by examining financial statements such as profit and loss statements, balance sheets, and cash flow statements from the previous year. This analysis will provide insights into revenue streams, cost structures, and areas of profitability or inefficiency. Identify any significant changes, patterns, or discrepancies that may have impacted financial performance.
Conduct a SWOT Analysis – Assess your business’s strengths, weaknesses, opportunities, and threats (SWOT). Identify internal factors that have contributed to success or limitations, such as unique capabilities, competitive advantages, or operational inefficiencies. Additionally, analyze external factors like market trends, customer preferences, or regulatory changes that may impact your business.
Seek Customer Feedback – Engage with your customers to understand their satisfaction levels, preferences, and pain points. Conduct surveys, interviews, or gather feedback through online platforms to gain insights into your products or services. Use this feedback to identify areas for improvement, prioritize customer needs, and align your budget with initiatives that enhance customer experience.

2. Setting Clear Goals and Objectives

By setting well-defined goals, you can provide direction, focus resources, and develop benchmarks for measuring success. Start with the following steps:

Define Strategic Priorities – Identify your business strategy for the upcoming year. Consider the long-term vision and mission of the business and determine the key areas that require attention.
Make Your Goals Specific and Measurable (SMART) – Transform strategic priorities into specific and measurable goals. Avoid vague statements and ensure that each goal is clear and concise. Keep in mind the availability of resources, certain market conditions, and any limitations or challenges that may impact goal achievement.
Break Down Goals Into Actionable Steps – Break down each goal into actionable steps or milestones. This helps in creating a roadmap for implementation and allows for progress monitoring throughout the year. Assign responsibilities and timelines to each step to ensure accountability and keep the team focused.
Regularly Review and Adjust Goals – Goals should not be set in stone. Business owners should regularly review and assess the progress towards goals and be prepared to make adjustments as needed. Flexibility and adaptability are crucial to ensuring they remain relevant and achievable.

3. Identifying Fixed and Variable Expenses

Finally, being able to distinguish between both fixed and variable expenses helps in understanding cost structures and making informed financial decisions. Try developing this skill with these tips:

Classify Regular and Consistent Expenses as Fixed – Fixed expenses are those that remain relatively constant over time and are not directly affected by changes in business volume or sales. Some common examples include rent or lease payments, utility bills, insurance premiums, salaries of permanent staff, and loan repayments.
Identify Expenses Linked to Business Volume as Variable – Variable expenses are costs that change in direct proportion to business activities or sales volume. These expenses tend to increase or decrease based on the level of production, sales, or demand. Examples of variable expenses include raw materials, direct labor costs, sales commissions, marketing expenses, and shipping charges.
Project Future Expenses – Once fixed and variable expenses have been identified, project future expenses for the upcoming year. Take into account any expected changes, such as rent increases, changes in supplier pricing, or planned expansion activities. Utilize sales forecasts, industry trends, and operational plans to estimate the level of variable expenses based on projected business volume.

Let’s Discuss Your Budgeting Plan

Does your current budgeting strategy need a little TLC? Devine Consulting can help. Become a member of The Flock and let our expert financial consultants help you revamp your business budget.

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