The Tribune

The month of March usually signals the start of budget hearings and defences throughout the government sector. Proper justification for monies required, and how they will be spent, is crucial if a business is going to succeed and grow.

A budget is a tool to track when and how you earn or spend money. Creating a budget is an important pillar of your overall success and security. It allows you to oversee, and better understand, whether your business has enough revenue (incoming money) to pay its expenses. Using a budget can help you make more informed financial decisions.

For example, if you know how much money you earned and spent every week for the last several months, you will know how much you can afford to spend if you want to hire a new employee.

Budgeting is an ongoing process rather than a one-time exercise because your business revenue and expenses could change at any time. Revisit and rework your budget monthly, quarterly or after changes to your business, such as big expenses, occur. This will help you stay on track to achieve your goals.

Here are some of the ways your company’s budget can help:

• Set short and long-term goals for business growth

• Track revenue, expenses and cash flow

• Trim costs to avoid overspending

• Prepare for busy seasons and slowdowns

• Maintain a record of finances

This week, our column focuses on tips for creating and utilising a well-prepared budget. Here are the top seven:

1 Examine the reasons why you need a budget

This is not just a vain exercise. Are you trying to reduce unnecessary spending, save money or seeking to pay off outstanding debts? Your motive will help lay for the foundation for the process.

2 Know exactly how much money you make before planning your budget

Before planning a budget, you need to know exactly how much money you can spend each month.

3 Create your budget around your longer-term financial goals

Although the decision to implement a budget may be based on short-term requirements, a budget must also factor in longer term goals such as saving up for an emergency fund, buying property, paying off debt, saving for vacations, saving for retirement or other similar goals.

4 Find ways to track all of your expenses

One of the most important things to do when planning a budget is to know exactly how much you are spending each month and on what.

5 Decide how much you want to save each month

If your budget plans include saving up for various future goals, you need to clearly determine how much of your monthly income goes into each goal. You can do this by first determining how much of your income you want to save each month, and then dividing that amount according to your priorities.

6 Create a buffer for emergencies

When you are planning your budget, it is a good idea to create an extra category for emergency expenses. While you cannot plan for these unexpected expenses, you can still prepare for them by setting aside some extra cash for emergencies. You could call this category “miscellaneous” and use it only when necessary without having to take money away from a different part of your budget.

7 Have realistic expectations

In order to implement your plan successfully, it is important to create a budget that is not too tight or challenging to stick to. It is best to carefully assess your expectations and create a budget that will give you enough freedom to live without worrying about your expenses.

8 Constantly review your budget

If you managed to create and implement a budget, the hard work is already done. However, the budget you created based on past habits likely needs adjustments over time as you gradually discover ways to make it more efficient. Your income and expenses are also likely to change periodically, so it is best to review your budget at least once every month or two. This will make it more efficient and realistic, allowing you to put your money to better use.

• NB: Ian R Ferguson is a talent management and organisational development consultant, having completed graduate studies with regional and international universities. He has served organsations, both locally and globally, providing relevant solutions to their business growth and development issues. He may be contacted at tcconsultants@coralwave.com.