Evaluating Your Growing Company’s Budget as Year-End Approaches
Budgets are essential for success in your growing company. They work as a guide to determine the resources needed to execute your vision, help with decision-making, and can serve as the backbone of a financially healthy business.
However, plenty of growing companies create a budget and then push it to the side. If growth and a strong financial system are important to you, you’re going to want to keep your budget close, and consistently refer back to it each month to ensure you are on the right track.
Not only does properly evaluating your budget serve you in the current year, but it better equips you for the year ahead.
Here are several ways you can evaluate your budget as year-end approaches.
Compare to Actuals and Make Adjustments
Running a budget variance report is one of the most effective ways to evaluate your budget. Budget variance looks at your budget and compares it to your actuals. This will show you all of the areas where improvements could be made.
From there you can make adjustments, based on data, that will redirect or improve your spending for the remainder of the year, making sure you finish strong and have a solid foundation for the year ahead. We refer to this as forecasting and you still want to hold yourself accountable to the original budget.
Making changes now will put you in a good place as you dive into creating your budget for the upcoming year. Spending that is recurring or on your budget in the previous year will be accounted for, meaning you can lean into those numbers and be confident in your spending plan.
Plan for Changes
As you wrap up the current year and head into the new, you probably have a good idea of any new changes and resources that will be needed to drive your future vision.
Maybe you’re hoping to boost sales and believe launching a new marketing campaign will do just that. Be sure you account for this increase when preparing your budget for the year ahead. You also should consider other expenses like:
- Changing to higher-priced vendors
- Outsourcing work
- Hiring new team members
These are all expenses you may not have had in the previous year but can foresee for the year ahead.
Inversely, you may be cutting back your expenses by:
- Changing to lower-priced vendors
- Improving your sales channels
- Lowering your costs of goods sold
Also, consider the ways in which you will fund your budget based on your plans:
- Maybe you need to raise capital through equity financing to support growth
- Or perhaps there is debt capital available for cash shortfalls
- Or maybe your plan is supported through self-generating cashflows
Be sure to plan for changes either way and incorporate them into your budget. This will help strengthen your budget and hopefully lower the number of changes you’ll need to make throughout the year.
Tie Your Budget Back Into Your Goals
Your budget was likely created with your goals in mind, so have you checked to make sure you’re still on track to reach those goals? And what have you learned in this process that can be applied moving forward?
Being within your budget is great, and is a goal within itself, but if you aren’t reaching your other previously set goals, you still may need to make adjustments.
For example, let’s say you want to lower your debt by year-end and you’ve been evaluating your budget to see if there are any areas where money isn’t fully being used. You notice you’ve been within your expected spending for marketing, in fact, you have allocated more money to marketing expenses than needed, and you have extra funds in this area. This may be the perfect opportunity to shift some of that remaining cash towards paying down your debt.
One of the most important takeaways from the budgeting process is learning. And then becoming better predictors based on that learning as we apply it to the future.
Involve Your Team
There’s a good chance you relied on your team to help you create a budget, so it’d be beneficial for you to turn to your team to help you evaluate it as well. They may be more familiar with spending and the pulse of day-to-day operations.
Involving your team can bring about new insight for:
- Lowering spending in certain areas
- Being aware of areas the budget could be adjusted
- Knowing where there may be changes coming
An added benefit to involving your team is that it creates an extra layer of accountability to their spending. When they are active in creating and evaluating the budget, they have a better idea of what is going on financially and how and where money should be spent.
Turn to a Trusted Financial Partner
Evaluating your budget prior to year-end is incredibly important. Not only will it help you make adjustments to get you where you want to be this year, but it will also assist in creating a strong budget for the year ahead.
To make sure your evaluation process is giving you all of the information you need to be successful, consider working with a trusted accounting partner, like New Economy. We’ll make sure your budget is accurate and focused on reaching your goals and take time to create a budget strategy with you that makes sense for your business. Through our partnership, you can confidently be prepared for the year ahead.
Want to learn more about how we help growth-minded entrepreneurs? Schedule an appointment and we’d love to learn more about your business.
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