FBP - Certified Public Accountants

Start Budgeting for 2022 Now

Start Budgeting for 2022 Now

 

If the last two years have taught us anything, it is that nothing is certain. However, that doesn’t mean we should not plan. In fact, planning and budgeting is more crucial than ever. We can take lessons learned from upheaval and apply them to the future, reducing risk and providing a strong foundation to help weather unpredictable challenges.

Although this may seem like common sense, according to Clutch Co., 50% of small businesses surveyed in 2020 did not have a formally documented budget.

 

What is a Budget

 

Everyone will have a different opinion on what a budget is and what it’s meant to achieve.  For us, we’re not interested in creating a boring document based on prior year plus 5% with little thought and little purpose.  That kind of budget is often created once at the start of the year, never revisited, and over time the conclusion may even be that budgets are a waste of time.

A budget that adds real value to your business will be packed with meaning.  For example, if sales are going to increase, why, how, and who is in charge?  How does that look in three months so we can measure progress?  In three months we’ll meet again, review our assumptions, and compare the actual results.  If actual vs. budget doesn’t match, we have an opportunity to learn about your business and improve.

A budget gives us a chance to compare expectations and assumptions with what’s actually happening, and then make strategic adjustments in real time to bring your company’s vision in line with reality.

 

Why A Budget is Important

 

A budget for your business is one of the best tools you can have in your arsenal to help you navigate times of crisis and uncertainty. Below are just some of the benefits a budget can provide:

  • Foundational component for strategic planning.
  • Ongoing monitoring of finances helps manage cash flow, putting you in control.
  • Helps track inflationary pressures on margins through identifying when expenses are trending up.
  • Clearly identifies profits that can be used to reinvest in your company or build a cash reserve for future downturns.
  • Provides a clear picture of ongoing expenses, so you know how much revenue is needed every month.
  • Detects times of year that are slower so you can adjust accordingly.
  • Identifies the impact of the pandemic or natural disasters on your business, which will help you build a contingency roadmap for future events.
  • Gives investors and lenders a clear picture of your company’s finances and plans for growth.

 

How is 2022 Different?

 

Although a budget is always important, it is now more crucial than ever to both have a budget and make it flexible. Having several contingencies planned out can give you an edge going forward. Your company’s 2020 and 2021 finances provide a wealth of information that can be used strategically going forward.

This knowledge allows you to build those contingencies into your budget, so you are prepared for multiple scenarios such as:

  • Continued pandemic impacts
  • Rising inflation
  • Return to pre-pandemic conditions
  • Natural disasters that may impact your business
  • Social or political unrest that may impact your business
  • Unexpected increase/decrease in demand for your products or services
  • Prolonged supply chain issues

 

Why start building a budget now?

 

Building a budget now gives each department in your company a roadmap for 2022. Even if you do not have “departments”, each aspect of your business needs to have a plan. Marketing, for example, should be planned for 2022 no later than Q4 of 2021. In order to do that effectively, a marketing budget must be in place.

Additionally, a budget built now gives businesses a clearer view of anticipated expenditures and helps develop timing for capital purchases, new hires etc. All of which affect your taxes.

 

What if you need help building a budget?

 

There are many online templates for business budgets. However, understanding both how to build a budget and how to use it as a tool can be challenging. If you need assistance, we are happy to help. We pride ourselves in offering proactive advice to all our clients.

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