The annual budget still has its place

Accountants like scorekeeping.

Keeping accounts up to date, reconciling the bank accounts, reporting monthly profits. This is  'bread and butter' work and an essential part of maintaining financial control for a business.

Another key tool is the annual budget. Typically in our business we do this towards the end of the current financial year. Already at Base52, we are thinking ahead to the next financial year. Plans are taking shape, things we would like to achieve. Extra costs we need to allow for. Pulling the budget together brings this to life. 

In a larger organisation, preparing the annual budget can be a major exercise taking a Herculean effort from the company accountants and senior management. In a small business, it might just be the business owner and their spreadsheet. 

Often the first draft is a disappointment. The projected profits are lower than expected. Then some tweaks and adjustments and it starts to take shape. Decisions are made about priorities.

Voila! You have it. 

Your financial plan for the year. You now know what is possible and what you need to do month by month to reach your financial goals.

Of course, that's the easy bit. You now need to work with your team and your customers to deliver the plan.

Without the budget or target, scorekeeping on its own is missing something. A bit like a runner recording his time without having a target time to aim for. Roger Bannister would probably never have achieved the 4 minute mile if he hadn't set it as a benchmark.

So in my view the annual budget should be an essential step for all small businesses.

It's one more thing to add to the already very long list but it should pay back many times over by providing clarity and improved financial control.

www.base52.co.uk