24 January 2020

Budgeting is often overlooked and undervalued. Once you have your business plan in place, it is important to then create a meaningful budget.

A budget is a financial plan which is compiled and reviewed periodically. It provides the benchmark against which to compare the actual results throughout the year.

Why prepare a budget?

It helps you to stay focused on your business plan and goals, enabling you to set initial goals and expectations to measure performance against throughout the year.

It highlights overspending by providing a mechanism to identify departures from your plan. Where an expense is proposed and not budgeted for, it makes you consider if it is really necessary. It also forecasts the expected impact on the bottom line compared with what you had planned.

It helps illustrate financial expectations which in turn holds management accountable.

A budget provides information to base decisions on and gives you better confidence in your decision making. This then gives you greater ability to make continuous improvement.

Preparing your budget

As your trusted independent advisor, we would work with you to set monthly targets for sales, cost of sales, direct costs and overhead expenses, as well as expected movements in the balance sheet. We would then apply our budgeting models to generate a set of reports for you. After collaborating with you to finalise the reports, the figures can easily be loaded into your own accounting software to report against.

This process should be followed up with a cashflow forecast and management reporting, which we will address later in this series.

Nexia New Zealand can assist you with setting your budget for the new financial year. We have experienced staff and budgeting tools that we use to present you with a full budget, including Profit and Loss, Balance Sheet and Cash Flow.

 

With the upcoming financial year fast approaching, now is the ideal time to start preparing your budget. Please contact us if you would like more information.

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