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A traditional budget is an estimate, or plan, of the income and costs of your business, for a specific period of time. Most budgets are prepared on an annual basis and reviewed every year.
A rolling budget is different because it covers a smaller period of time in the immediate future, say the next six or nine months. It’s reviewed every one or two months, and updated by adding another month or two to the end.
The advantage of a rolling budget is that you’ve always got a projection into the future of about six to nine months. By taking time out to regularly review it, you can correct it for any significant changes, preventing it from getting seriously out of date.
Gross profit is your sales minus the cost of the goods you’ve sold. It does not include the general costs of running your business.
Estimate your sales and associated costs on a monthly basis for, say, the next six or nine months. If possible, break the sales and costs into different categories, such as by type of product.
Deduct the costs from the sales and you’ve got a budgeted gross profit per month and for the entire period.
Compare that with the net profits you’ve been making recently, to make sure it’s realistic. If you’ve budgeted for growth, do you know where it’s going to come from? Being optimistic is good, but it needs to be based on reasonable expectations of what’s possible.
Net profit is your gross profit minus the overheads of running your business – day-to-day administrative costs, insurance, telephone bills, that sort of thing.
Again, for the budget to be useful, the figures need to be reasonably accurate. There’s no need to budget to the nearest pound, but make sure you include all the potential costs.
The more often you prepare budgets, the better you will become at making estimates and spotting potential oversights or problems.
You’ll now have a budget for the next six to nine months which covers all your income and costs.
It’s called a rolling budget because every month or so you review it and add another month or two at the end.
That way, it’s always projecting several months into the future, and it’s always relatively up to date.
A traditional 12 month budget, set at the start of the year and never changed, becomes increasingly out of date and meaningless. A rolling budget, however, is constantly adapted to your current circumstances.
If you want to remain in control of your business, you must take time out from the day-to-day to examine what’s happening financially.
If you don’t check on key financial areas, such as credit control, your profit and loss, cash flow forecasting and your budget, it’s very easy to lose direction.
Reviewing your budget involves comparing what you expected to happen with what actually occurred. Sales will be above or below what you predicted, as will costs.
Where the difference is significant, take the time to find out why. It can help you understand your business better and budget more accurately in the future. It could also reveal a problem – such as an error in your accounts, or an expensive purchasing mistake.
A huge benefit of budgeting is that it makes you think about the future, and about your opportunities for growth.
To seize these opportunities requires finance, which is where Business Recovery can help you.
Hundreds of firms have benefited by sourcing additional working capital through us, often from sources that they had not previously considered. We work with a network of funders who want to put money into smaller businesses to help them grow.
If your firm could benefit from an injection of cash, either for a specific project or simply to improve your cash flow, give the Business Recovery team a call right now.