A budget is a fixed limit on spending. You know you can not afford more so you fix yourself a budget.
If your income is fixed e.g. when you are on a fixed salary, then budgeting is very important. This is when you apportion your income into budgets for things like household bills, food, clothing, etc.
You then have to be very careful not to go over that budget or you could be in trouble.
Hence from Charles Dickens comes The Micawber Principle:
“Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”
You may have the opportunity to get more income – by doing overtime or a Saturday job but keeping within budget is important.
New rules have come in this April meaning mortgage companies will be starting to ask about household budgeting as part of their assessment before they will give you a new mortgage.
A Business Plan
Business budgeting on the other hand is much more complicated as it includes flexible income.
When in business, a business plan is essential. You have to have a plan of how you are going to generate income.
With a business you can never rely on income. You can only plan and hope. Your plans must therefore be flexible and constantly monitored so they may be changed if circumstances change.
Contingency plans are often necessary – If plan A does not work then this is plan B.
It is also a good idea to have a budget for any new venture – How much are you willing or able to spend on that venture before you give it up as a bad idea?
A business plan need not be in writing (unless you are asking for finance) but it must consider all of the principal areas:
- The business objectives & vision
- The product/service
- The market place
- The marketing plan
- Sales targets
- Production & delivery
- Business structure
- People involved
- Financial projections
It may be daunting but start by considering all the questions:-
- Who? – Customers, workers, financiers, controllers, owners, beneficiaries
- What? – Products, service, aims, needs, benefits
- Why? – This set up, this way, these products/services
- When? – Start, open, be profitable, repay its loans, reap benefit
- Where? – Base, market place, customers, products/services originate
- How? – Set up, managed, staff appointed, maintain quality, market, sell, deliver.
When these questions have been answered then you should have all the words for the plan and the information for us to be able to help with the cash flow projections etc.
We can provide help with business planning, specifically the financial projections but you have to do the background work.
“He who fails to plan is planning to fail.” Winston Churchill.