Producing a 12-month budget

Budgeting helps you pinpoint any difficulties before they occur, measure performance, and of course stay in control of your expenditure.  It's worth noting that a budget is a planned outcome of the future, so differs from a business forecast, which is a prediction.  Here's what you need to know about making your budget:

  • The content
  • The structure
  • The advice

The content

Your budget is made up of three basic elements: projected cashflow, costs and revenues.  If you haven't worked out your revenue forecast yet, check our guide on it - likewise for cashflow.  Costs include fixed, variable and one-off capital costs.  Break fixed down into type: rent, equipment, salaries (your own and any others), advertising, expenses, and so on.

  • Three basic elements: projected cashflow, costs, revenues
  • Break down fixed costs into type

The structure

12-month budgets work best when they've been drawn up on a month-by-month basis.  This helps you predict specific periods of difficulty, and when you might have a bit of extra cash to splash.  Your budget can start splitting into smaller budgets: marketing budget, sales budget, and so on - although still use an overall budget.  Spreadsheets are by far the easiest way to create and revise budgets.

  • Draw up on month-by-month basis
  • Can split into smaller budgets
  • Use spreadsheets

The advice

Once you've made your first draft, find ways to reduce costs.  Figure out any periods where cashflow might be a bit sticky and work out how to avoid problems.  Consult an accountant or anyone you know who has financial experience.  Refer to your budget frequently - at least monthly - and measure your progress.  Revise it if and as often as necessary.  Many successful businesses use a rolling budget that always plans the next 12 months.

  • Cut costs and predict difficulty
  • Consult financial experts
  • Refer to and revise
  • Rolling budgets can be very effective

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