Why your business needs budgeting software
Budgeting: it’s a word that can strike fear into the heart of even the most stalwart individual. Many of us tend to associate the word ‘budget’ with a fixed amount of money to spend on particular items, over a set amount of time. And while most people would agree that working with a budget is a sensible decision, the idea of actually creating one can feel daunting – to say the least.
It’s why many people with even modest assets would rather hire an accountant to manage their finances than actually tackle them personally. And who can blame them? Personal finance, however, is not quite on the same level as business finance. When you’re running a corporation, there are an enormous amount of factors to consider in a budget, that extends well beyond simple bookkeeping and staying on top of expenses.
Business budgeting is essential to a company’s growth and success. And the good news is – it doesn’t have to be a complicated process. In this post, we’ll examine the ins and outs of basic business budgeting, and how the right software can make all the difference.
What is a business budget?
A business budget has two main functions:
- It should be an accurate representation of your income and expenses upon which you base major decisions such as investments in marketing and equipment, new hires, resource allocation and more.
- It should also serve as a framework for your business financial goals and forecasts. Knowing where you are can help you plot a trajectory to where you want to be. A good business budget can act like a guide in aiding future growth plans and initiatives.
Essentially, the purpose of a business budget is to give you the numbers you need to make informed decisions about the past, present and future running of your company.
Why do I need a business budget?
The obvious answer is: to keep track of and manage your finances. Every business, no matter how early its stages, needs a clear, competent budget to move forward. In fact, you won’t get a business loan OR investor money without one. After all, if you can’t crunch the numbers and show exactly where the money is going, and how you plan to turn a profit, you won’t inspire any confidence.
How does it work?
Basically, building a business budget means determining your company’s monthly regular expenses (both fixed amounts and those that can change). This is the first crucial step when deciding where and how to allocate your income.
These expenses can vary depending on the size of your business. Here’s a list of the most common types of fixed outgoings to take into consideration:
- Office space rental or mortgage costs
- Loan repayments (if applicable)
- Utility bills that are the same every month such as internet
- Equipment maintenance and replacement
- Equipment leases (for example, vehicle hire)
The above are some examples of fixed costs to consider in a business budget. However, many expenses are also variable (meaning they can change according to your activity that month). Here are some of the most common variable costs:
- Wages for commission workers or contractors/freelancers
- Utilities that vary according to consumption like gas/electric or water
- Unexpected repairs and maintenance
You might find it a lot easier to calculate expenses than to calculate revenue (especially if you’re a new business and don’t have a lot of history to fall back on).
A key point to remember is that erring on the side of caution is always a great idea. Modest projections for income and generous predictions for outgoings is never a mistake, especially when you’re just starting out. If you consistently close the month with a surplus, this creates a pattern you can use for future budget adjustments.
In terms of how often to update your budget, monthly evaluations are generally the way to go at first. Once your business finds its feet and establishes a rhythm, this can change to quarterly or even annual reporting.
It’s important to remember that certain expenses or income should not necessarily factor into future predictions. Some of these include:
- Employee bonuses or New Hire Incentives
- Losing or gaining a client
- Breakdown of equipment
- Associated costs of lease renewal
- Annual tax returns/fees
Where does software come in?
Like most process-driven tasks today, managing your business budget is as simple as investing in the right tool for the job.
There’s not much room for human error when it comes to getting the numbers right. After all, you want to make sure that you’re operating on a realistic budget that’s based on cold, hard facts as opposed to overly-optimistic projections. Doing this requires a certain level of detachment from the business you’ve worked so hard to build. This is where a bit of AI pragmatism comes into play.
Business budgeting software will make data-based projections based on real-time numbers. This means you’ll be able to trust that its predictions are as accurate as they can be. You’ll also have the advantage of all the numbers in one place, on one system, with a clear trail that can answer those nagging questions such as “what happened to that extra $2000 we were meant to have this month”?
Not only that, but business budgeting software will generate automatic reports – saving your team a significant amount of time (which, as we all know, is money). Essentially, the benefits of business budgeting software are as limitless as the potential of your brand.
If you’re considering investing in business budgeting software, companies like Mosaic offer fantastic toolkits that can help you budget your way to corporate success.
Story by Heather Wilkinson. Wilkinson is a globe-trotting content creator and PR enthusiast at ResumeCats who’s finally put down roots in her native UK.