Be honest. Did you dream about being “in the black” at fiscal year-end when you started in business?
And, now? You’ve got a going concern, and yet, you find yourself back at the drawing board with your business budget. Do not worry. Business budgeting is a critical skill that inDinero’s outsource accounting team can take off your plate today.
You may be wondering, how do fractional accountants make budgeting look so easy?
To lead any company where you want it to go, a solid understanding of the budget is a must. Becoming a ‘budget boss’ requires knowledge and practice. Not to mention the right financial partner to answer questions and advise on efficiency, fundraising, and other similarly crucial growth activities.
To move you toward your desire to be the master of your business’s budget, we put together an 8-question quiz that will show you how boss you are or where you need to improve your financial knowledge.
Know Your Business Budget Better Than You Know Yourself
Business creators are “where to” people and on the flipside are accountants who are “how-to” technicians. In this two-sides-of-the-brain scenario, the business budget is a corpus callosum that illuminates both ways of thinking about business strategy and growth.
Take our 8-question quiz and then scroll down for the answers.
A Business Budget Quiz
Q1: How often should you be reviewing your budget?
Q2: What are two reasons for budget planning?
Q3: How does budget planning help during unexpected financial situations?
Q4: What is another name for budgeting for risk?
Q5: How many budgets should your business have?
Q6: When should you invest in accounting software?
Q7: Does a budget need KPIs?
Q8: Will an investor want to see your budget plan?
We hope you enjoyed taking our quiz. Here come our answers. If they are different than yours, that’s okay. Let us know your thoughts in the comment section below.
How well did you do on our business budget quiz?
A1: You should review your budget on a quarterly and annual basis.
A budget is a plan for reaching your organization’s long-term and short-term financial goals. Planning a budget makes managing money more straightforward and more effective. Not only are you putting together a financial roadmap for the future, but it also helps with immediate money management concerns.
For the best results, review the budget on an annual or quarterly basis. This time frame allows incremental changes to be made based on the results and progress of the company.
A2: You need a budget plan for several reasons including, unstable revenue, outcomes, savings, strategy, and cash flow management.
You shouldn’t just have a budget; you NEED a budget. Running a business or department without a budget is like driving a car while wearing a blindfold. You need to plan your budget for several reasons:
- To ensure coverage during seasons of unstable revenue in your business.
- So resources are allocated appropriately for business growth and development, enabling each department and team to know the expected outcome.
- Budgeting paves a way to strategize the long-term and short-term revenue goals for the organization.
- It creates a financial roadmap that will facilitate savings and ensure that you don’t spend the money you don’t have.
- In case of emergency, your business doesn’t suffer a financial loss. Cash in the bank will keep things going.
A3: A budget provides scope for solutions to unexpected financial situations.
Sometimes, even with precise planning, unexpected costs arise. These costs might cause you to exceed your budget. The best solution is to look for external sources of funding until your business stabilizes.
Better yet, have a backup plan in place in case you can’t stick with the planned budget. Set aside an emergency fund for contingencies.
A4: Another name for budgeting for risk is contingency budgeting or risk contingency budgeting.
A budget plan will set a detailed financial scope of your business, including all of the company’s anticipated expenses. Plan for the unexpected such as supply delays, or system failures, or seasonal revenue swings. You’ll need an analysis of inherent risks and the probability of unexpected risk. In other words, you are planning for the worst.
Your budget should include a contingency and a debt management plan for emergencies.
A5: You need one well-designed budget to run your company.
Many other factors might impact the bottom line. So, create a budget that is flexible enough to be revised as needed.
Make sure your budget keeps all the departments and operations in mind. Talking to the managers and department heads can be helpful. The groups on the front lines will help you identify potential gaps in the budget. For example, these people can help you estimate future investments for inventory or machinery. It is also important to set aside an account for R&D and innovation and sales and marketing.
A6: You should invest in accounting software when you are spending too much time (and losing money) on budget management.
Early on, using money management apps or budget software to track your spending and income will help. These programs are organized and automated, helping to minimize the ongoing busy work so that you can easily keep up with the financial management. The software can show a good indication of when you need to revise your budget or conduct a financial audit.
When you are spending too much time on budget management and reporting, you will need to upgrade to a more robust accounting software solution. Ideally, you should have a CFO help you plan your budget and customize it. You’ll be glad you outsourced an expert to oversee the plan and ensure that everything is implemented in the right way. Even the best software can’t offer the critical thinking and creative strategizing of an experienced fractional CFO.
A7: Key Performance Indicators or KPIs provide the all-important insight into your budget.
Key Performance Indicators (KPIs) can point you in the right direction when setting a budget. KPIs can help you plan the more minor details while simultaneously focusing on the big picture. The challenge is to determine what KPIs are needed to measure performance accurately. Common KPIs for setting a budget plan include:
- Operating cash flow and expenses
- Sales and marketing initiatives
- Payroll expenses
- Return on equity
- Burn rate
- Accounts payable and receivable
- Turnover rate
Want a little more information about what these terms mean? Read our blog on a business owner’s Top 7 Accounting Terms & Equations.
A8: An investor has specific expectations for your financial reports.
For an early-stage startup, it is best to get a CFO to prepare the budget. Venture capitalists and investors expect you to have a clear budget plan and a comprehensive financial forecast. Most entrepreneurs and new business owners don’t have the experience to create an accurate forecast to generate the funds that are needed for business efforts.
These investors expect you to know how to communicate critical financial performance indicators, such as the anticipated burn rate for your startup. Instead of spending the cash on the salary for a CFO, consider other options that allow you to tap into the experience that is needed at this stage in your business. An external advisor, like a CFO, will help you streamline the process and prepare you for unexpected questions thrown at you by investors.
Are you wondering how you can manage your business’s cash flow and financials and run a company? inDinero has helped thousands of businesses grow. Schedule a chat with one of our business accounting experts today.
Quick Note: This article is provided for informational purposes only, and is not legal, financial, accounting, or tax advice. You should consult appropriate professionals for advice on your specific situation. inDinero assumes no liability for actions taken in reliance upon the information contained herein.