Budgeting might not be the most glamorous part of running a creative business, but it’s definitely one of the most important. Without a clear understanding of what you have to spend, it won’t be long until you find yourself in a very sticky situation, financially speaking.
For those in the creative industries, thinking outside the box is your bread and butter, but managing your finances might not come as naturally. To help you out, we have put together some handy tips when thinking about budgeting to give you a nudge in the right direction. So, let’s get to it.
First up, what is a budget and why is budgeting important to a business?
A budget is essentially the financial plan for your business. It projects your expected revenue, expenses, and profit and ensures that everything is accounted for.
But why is budgeting important to a business? Well, because it serves as a benchmark for performance, ensures financial stability by forecasting cash flows and aligning your finances with your business goals. Overall, a budget is a crucial tool that supports decision-making, risk management, and guides a company towards long-term success.
What to Remember When Creating Your Budget
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Set Clear Financial Goals
First things first, let’s talk about your business goals, as this will help guide your budgeting decisions. These could include your revenue targets, profit margins, or investment in new creative projects. This will be the first step in creating your budget. Think about both the short-term and long-term goals you want to achieve for your business and then plan your budget accordingly.
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Look at Your Past Performance
Understanding your financial history is crucial as it gives you a solid foundation to build your budget on. It shows where you’ve been and helps you decide where you need to go next. Using historical data to base your figures and actual numbers from, the past will help ensure that your budget is both accurate and realistic.
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Forecasting Revenue
While predicting your future income can sometimes feel like gazing into a crystal ball, it’s an essential part of your financial planning. You can do this by forecasting your revenue with tools like Xero. By analysing historical sales data, generating financial reports, and using cash flow projections within the platform, you can estimate your future revenue over a specific time period to see how much profit you stand to make. Plus Xero integrates with forecasting tools like Futrli or Float can enhance Xero’s capabilities for more detailed revenue projections.
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Estimate Expenses
Knowing what’s going out is just as important as being aware of what’s coming in. Therefore, estimating your expenses will ensure that everything is properly budgeted for. In business, there are two types of costs: fixed and variable. Fixed costs are your regular, predictable expenses like rent or payroll. These are, of course, fairly easy to estimate.
Variable costs are where it can be a bit trickier as they fluctuate and will depend on the number of goods or services you provide, for example, the cost of your labour or raw materials, which of course is subject to change. But regardless, any effective budget needs to include a well educated forecast of these costs.
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Don’t Forget Your Savings
Saving is an essential part of any budget but many businesses fail to factor it in. This will ensure that you have cash set aside for any unexpected expenses. Whether it’s a broken laptop, a surprise tax bill, or an unforeseen cost from a project, having an emergency fund you can dip into when needed keeps you prepared. Having savings is vital in order to invest back into your business and grow- so don’t forget about it.
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Monitoring and Adjusting Accordingly
Your budget isn’t a set-it-and-forget-it deal. It needs regular check-ups to ensure it’s working correctly. Depending on your business, you should be reviewing your budget consistently and seeing if it needs any tweaks or adjustments based on recent events.
We suggest a monthly review, with more in-depth analysis undertaken on a quarterly basis. This will ensure that you are on the right track and help you make smart and strategic financial decisions to keep your business moving forward.
So, now you know why budgeting is important to a business, you can be sure that your budget is in tip-top shape. By setting clear goals, analysing past performance, forecasting accurately, and regularly monitoring, you’ll keep your business financially healthy and going from strength to strength.
Most of all, with this type of information in place, it lowers stress levels as you can always be sure you have a clear understanding of the position your business is in and can adjust and react accordingly.
But what about if you’re not super confident in creating a budgeting plan for your business? As a specialist accountant for creatives, we proactively work with creative businesses to help simplify the jargon and achieve their desired results. We can walk you through the process, answer any questions you might have and deliver a desirable final outcome that you can be confident in.
You do the cool, creative stuff, leave the budgeting and heavy lifting to us
If you want to get your business finances in order but need some help, then get in touch. As experienced accountants for creatives and budgeting extraordinaires, we can crunch the numbers to set you on the path to continued success.
