Before you launch or even after you are up and running, your budget is the ultimate tool to gain financial control of your company and make informed decisions. It is necessary for the budget to be realistic – strongly connected to the business strategy (sometimes, even reality!) to provide the desired results. We want to help you get your budget realistic and achievable!
§ Involve the people who are crucial to the revenue/sales during the budget formulation. Try to prepare a ‘parallel’ budget by incorporating their views too. But make sure that the costs of building a budget are less than the benefits of having the budget in place.
§ Start with the obvious (sales and costs that you are aware of!). If you are not aware of something, just take a guess – but it is better to err on the side of being conservative.
§ Estimate the cash inflows and outflows in a detailed manner – at least for rolling 12 months. It highlights potential problems before it rises and helps to arrange funds early. Build your emergency fund too.
§ Understand the hiring needs clearly – especially the cost and timing of senior roles. Reach out to your network or ask other founders to understand the underlying costs to the company for hiring associates at each level/skill set/location. It would avoid surprises when you actually roll out the offer to the candidate you like.
§ If you are in e-commerce, try to get a more realistic cost estimate for each product/SKU until it lands in the customer’s hands. Your COGS should include the shipping costs (either a flat rate or real time quote), potential import duties, packaging, warehousing costs and leftover inventory too.
§ The real costs behind a company’s online presence is usually underestimated. The budget must include all the costs related to web design & hosting, its maintenance, product photography, promotion, content writing, and the regular social media spend.
§ For seasonal businesses, the budget should include detailed forecasts on the cash requirements for slow seasons too. The slow months can also be used to experiment on new revenue streams/work on new product offerings.
§ Setting up easy revenue targets might encourage ‘coasting’. Associates may avoid exceeding the budget in case a more difficult target is set the next time. Make sure your associates don’t ‘use up’ the cost budget for the fear of being given a smaller budget in the following period.
§ Your budget can help you only if you are consistent in bookkeeping. Make it flexible, review periodically, detect the mistakes in your assumptions and modify them as necessary.