Does your budget reflect your business goals? » SMEInsider

Does your budget reflect your business goals?

martin campbellMartin Campbell is a serial entrepreneur and MD at award-winning startup Ormsby Street. He focuses on high-growth digital businesses and the use of technology across retail, commercial, finance and not-for-profit environments. Martin has worked with businesses both in the UK and internationally and supports young entrepreneurs and startups through his mentoring and training work and his blog, The Thoughtful Entrepreneur. In this guest post he explains how you can improve business performance by tweaking your budget.

It’s worth remembering among all the hype and hurried analysis of the Government’s budget that the most important budget for your business hasn’t just been pulled out of that famous briefcase: it’s the one that’s setting your spending priorities day to day. A great practice for any small business is to take a full and proper look at the whole budget – not just the tweaks and headlines. To do this, you’ll need to ensure that you’ve covered each of the following five areas:

1) Know what you’re spending, and on what. It’s easy to keep a track of spending on big ticket items like salaries, and rent and bills with key suppliers, but while those transactions might be clearly visible,  it’s important to keep tabs on other spending in the business, such as travelling, entertaining, telecoms and IT. These are all costs that are easy to take on without really realising the impact on the big picture and it’s crucial that you have a clear and up-to-date picture of where things are. For most small businesses, keeping management accounts can and should be a simple operation. It might be achievable with a spreadsheet, but more often than not, one of the many bookkeeping software tools around can act as your point of reference for tracking spending and can join up your payroll, invoicing and staff expenses activity in one place.

2) It’s then essential to classify your spending – to know where the money is really going. Rather than just accepting generic categories, make sure that you pick what is right for your business. Sales and marketing might be one budget or might be separate activities needing their own budgets. Team members might originally be allocated to one area of the business but then move to work somewhere else. Ensure that you have the right labels on all your expenditure and be prepared to make judgement calls to represent things correctly. For example, your phone bill might be an admin cost, but if 80percent of charges are from outbound marketing calls, that’s how the cost should be accounted for.

3) Before looking at the results of 1 and 2, you need to look at strategy – what activities and numbers are important for your business? Are you focussed on growing your turnover as quickly as possible, or on maximising profit from your most important product or service? It’s worth thinking about this in budget terms and considering what percentage of your effort you feel you should be pushing to a particular area, whether this be marketing, sales, operations, support or admin.

4) Now comes the moment of truth, where you bring together your priorities and your strategy with where your money is going. The chances are that they won’t line up. All businesses evolve over time as markets change and products and organisations mature. Businesses that can adapt and spend their resources in a way that aligns with their strategy will outperform those that don’t every time.

5) Finally, you have to follow through on all of the findings. Your budget might show that you need to spend less in one area and more in another to ensure the health of the company, but it’s not as simple as waving your briefcase like a magic wand. You will need to engage your colleagues with changes in how the business operates – perhaps quite major ones – and it can be just as intimidating to have ones budget trebled as it can to have it slashed. Your budget might require that team members are assigned to different roles in order for the business to improve its performance, so once you’ve set out your own budget, that’s when the work really begins.

Ormsby Street is a Software-as-a-Service business based in Old Street, London. Formed in 2014, Ormsby Street is developing the next generation of financial data services for small businesses. Its team of high-performing product innovators and software engineers are quietly taking sophisticated financial information and turning it into a next-generation digital tool to help businesses make good decisions about customers, suppliers and themselves.