The Ultimate Three-Way Budget for Small Business Owners

Oct 08, 2018

Not everyone likes to budget, but it is an integral part of running a small business and will keep your business on top of its game. Luckily, the skilled staff at SRJ Walker Wayland have broken budgeting down into three simple parts to help you get ahead when it comes to doing the math, and remind us that “what gets monitored gets managed.

Here’s what your three-way budget should include:

1. Profit and Loss

Budgets should begin with a detailed look at profit and loss. Ask yourself what the costs and revenue-drivers are in your business, and look at what happens when these change. For example, how many existing customers do you have and what is the average invoice value?

Use past and present information from management accounts and financial statements to work out your anticipated profit for the next 12 months; be aware of industry changes that might affect the business.

2. Cashflow Forecast

Profit looks great on the books, but without enough cash to pay costs your business will struggle. This is why predicting your cashflow is vital; it allows you to prepare for when cashflow slows down and gives your business the chance to plan ahead.

Planning ahead for the timing of your likely cash inflows and outflows allows you to identify the need for a capital injection, an increase in credit or to boost your cash flow in some other way.

3. Balance Sheet

A healthy balance sheet makes for a happy business: this includes what the business owns (its assets), what it owes (its liabilities) and what’s the difference in those amounts (the equity). A truly healthy balance sheet will show that your assets well exceed your liabilities, ensuring your business can comfortably meet its obligations.

Revisiting Your Budget

Like the weather forecast, predicting what will happen in your business may not always be exact; don’t stress out if you’re not getting exact results immediately. On top of that, change happens every day; revise your budget regularly to make sure it is up to date.

Invest in the future of your business by asking the helpful staff at SRJ Walker Wayland to:

  1. Create your three-way forecast;
  2. Monitor and update your three-way forecast with your actual results;
  3. Discuss ways of keeping your business’ performance on track.

Implement a three-way budget into your business and see what a difference it makes to your decision-making, motivation levels, performance, and ultimate success.