Fundamentals of a business budget

A business budget is one of the essential tools in managing your business finances and actively building your business.

A budget shows what you plan to do with your cash over the next year.

For a complete picture of your business health, you need to review the profit and loss statement, the balance sheet, the cash flow forecast and the budget. Taken together, these reports allow you to make informed business decisions and monitor performance.

Why have a Budget?

  • Forecast sales and expenses according to monthly or quarterly variations.
  • Evaluate performance over time, including changes or patterns.
  • Get really familiar with where your money goes and where it comes from.
  • Clarify targets and goals and use the budget to help you focus and achieve those goals.
  • Comparing actual figures to budgeted figures allows you to see potential problems early and plan for unexpected costs.
  • A budget will help you to see the big picture and stay motivated over the long term.

Where to start

A basic budget takes known income and expenses, then makes certain assumptions about the timing of income and planned expenditure. The basic budget is based on cash in and out of the business.

Over time, as you start to see the benefits of using a budget, your budget should evolve into a more sophisticated version that includes non-cash elements such as provisions and depreciation.

Most businesses will start with one budget but soon move to having three budgets.

  1. Business as usual – the next year’s budget is based on current year income and expenses, with perhaps a small adjustment for consumer price index increases.
  2. Worst case – budget is based on a pessimistic view of next year’s performance.
  3. Best case – budget is based on an optimistic view of performance over the next year.

A budget is usually for a financial year, but you can also set up budgets for two to five years.

Once you have one budget (or more) set up, you can then run your current financial reports against the budget to see how you are tracking. This allows you to make rational business decisions in real time to adjust accordingly.

Your can run your financial reports monthly and adjust your budget as needed.

What Next?

Now is a great time to put a budget into place for the coming financial year. Book a time with us to help you create a meaningful budget in your accounting software so that you can use it as a proactive part of your business management, strategy and your success.

Maintaining Customer Relationships

With many businesses struggling to achieve pre-Covid sales levels, and the potential for unemployment to spawn a new breed of start-ups, having a customer retention plan has never been more important.

Surprisingly, the most inexpensive way to grow a business is to maximise customer retention. Statistically, the probability of selling to an existing customer is 60 – 70% and drops to just 5-20% for a new prospect. Existing customers are also 50% more likely to try new products and spend 31% more when compared to new customers.

10 Retention Strategies to boost sales with existing customers:

1. Listen to bad reviews and complaints.
These are a blessing in disguise so encourage all feedback, including complaints. Consider running the Net Promotor Score customer survey or asking your customers the all-important question ‘What’s the one thing we should do to improve our service to you?’ Then, act on that.
2. Go old-school. Call your customers.
Calling your key customers every few months shows you care and gives them individual attention. Simply ask how they are, talk about any new products or special offers, and let them know that you care. Your call process and frequency will depend on your industry.
3. Go the extra mile. It’s never crowded.
If you’re a service business, schedule an after-service phone call in your diary to obtain feedback; asking if the service has met their expectations. This is easy to do, but few businesses do it, so bake it into your sales process. Quality trumps speed!
4. Create a VIP programme.
Reward your most loyal customers, knowing that it costs five times as much to attract a new customer than keep an existing one. Consider members-only events, discounts and VIP cards. This applies to almost any industry.
5. Be social.
Get creative on your social channels. Follow key customers and be part of their online community. It may be worth setting up a closed Facebook community group to foster community spirit and leverage your customers to help build your brand. For example, a vegan restaurant owner could create a closed Facebook community where customers share community events, recipes, ideas, menu suggestions, etc.
6. Have a referral system.
There are three simple steps to a successful referral system. Firstly, ask for referrals (make this clear on your website and in all other communications). Secondly, when you get a referral, thank the referrer. Lastly, reward them, either by giving them ‘soft dollars’ (a voucher to spend in your business) or an appropriate gift.
7. Hold events (social distancing permitting).
Consider hosting invitational instore events or organising a group to attend a sports game or movie premiere; just some ways to thank customers and reward their loyalty. Take the communication offline to encourage social interaction between close customers and your team.
8. Send a thank you card.
When you get a new customer, send them a handwritten card. Set a high standard of customer care by making that first impression. Snail mail is rare these days, so make it count!
9. Use the FGG principle.
Find out what they want, Go and get it, then Give it to them! Every chance you get, ask customers what they need, what you could be doing better to serve them, and then act on that. Help them to help you grow your business.
10. Create lifetime customers.
This strategy should be your number one priority. Start with your purpose (why you exist for your customers). Summarise it in one sharp sentence. Make sure your team understands your purpose and how behaving true to that purpose will help create customers for life.

Creating your Customer Retention Plan

You’ve probably got lots of ideas for improving customer retention. You won’t be able to implement them all, so choose some strategies that will be easy and inexpensive to implement but will have a big impact. You’ll need to record your chosen strategies and actions in a Customer Retention Plan and train your team on how they all play their part.

“Satisfaction is a rating. Loyalty is a brand.” – Shep Hyken