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Once your business is operational, it's essential to plan and tightly manage its financial performance. Creating a budgeting process is the most effective way to keep your business - and its finances - on track.
This guide outlines the advantages of business planning and budgeting and explains how to go about it. It suggests action points to help you manage your business' financial position more effectively and ensure your plans are practical.
Planning for business success
The benefits
What to include in your annual plan
A typical business planning cycle
Budgets and business planning
Benefits of a business budget
Creating a budget
Key steps in drawing up a budget
What your budget should cover
What your budget will need to include
Use your budget to measure performance
Review your budget regularly
Planning for business success
When you're running a business, it's easy to get bogged down in day-to-day problems and forget the bigger picture. However, successful businesses invest time to create and manage budgets, prepare and review business plans and regularly monitor finance and performance.
Structured planning can make all the difference to the growth of your business. It will enable you to concentrate resources on improving profits, reducing costs and increasing returns on investment.
Even without a formal process, many businesses carry out the majority of the activities associated with business planning, such as thinking about growth areas, competitors, cash flow and profit.
Converting this into a cohesive process to manage your business' development doesn't have to be difficult or time-consuming. The most important thing is that plans are made, they are dynamic and are communicated to everyone involved. See the page in this guide on what to include in your annual plan.
The benefits
The key benefit of business planning is that it allows you to create a focus for the direction of your business and provides targets that will help your business grow. It will also give you the opportunity to stand back and review your performance and the factors affecting your business. Business planning can give you:
a greater ability to make continuous improvements and anticipate problems
sound financial information on which to base decisions
improved clarity and focus
greater confidence in your decision-making
What to include in your annual plan
The main aim of your annual business plan is to set out the strategy and action plan for your business. This should include a clear financial picture of where you stand - and expect to stand - over the coming year. Your annual business plan should include:
an outline of changes that you want to make to your business
potential changes to your market, customers and competition
your objectives and goals for the year
your key performance indicators
any issues or problems
any operational changes
information about your management and people
your financial performance and forecasts
details of investment in the business
Business planning is most effective when it's an ongoing process. This allows you to act quickly where necessary, rather than simply reacting to events after they've happened.
A typical business planning cycle
Review your current performance against last year/current year targets.
Work out your opportunities and threats.
Analyse your successes and failures during the previous year.
Look at your key objectives for the coming year and change or re-establish your longer-term planning.
Identify and refine the resource implications of your review and build a budget.
Define the new financial year's profit-and-loss and balance-sheet targets.
Conclude the plan.
Review it regularly - for example, every month - by monitoring performance, reviewing progress and achieving objectives.
Go back to 1.
Budgets and business planning
New small business owners may run their businesses in a relaxed way and may not see the need to budget. However, if you are planning for your business's future, you will need to fund your plans. Budgeting is the most effective way to control your cashflow, allowing you to invest in new opportunities at the appropriate time.
If your business is growing, you may not always be able to be hands-on with every part of it. You may have to split your budget up between different areas such as sales, production, marketing etc. You'll find that money starts to move in many different directions through your organisation - budgets are a vital tool in ensuring that you stay in control of expenditure.