Partner Article

Why a budget can keep your business on track

In the countdown to Chancellor George Osborne’s March 19th budget revelations, the government is welcoming original and innovative ideas in the interests of open and transparent policy-making.

So what would I tell Mr Osborne to include when he stands before the House of Commons outlining his financial proposals for the next 12 months?

As someone who is passionate about helping SMEs to grow their business and their profits - I would welcome any plan involving a cash break which would benefit small companies.

More needs to be done to ensure that SMEs are given the opportunities to thrive and expand. While the British Bankers’ Association (BBA) insists that banks are willing to lend to small businesses this really isn’t the case as a recent report from the Public Accounts Committee highlighted.

According to MPs from the various parties, SMEs are still struggling to borrow money and the Funding for Lending scheme has fallen by £2.3bn since June 2012. This is further supported by Bank of England figures which have revealed that all lending to businesses fell by £4.3bn between September and November 2013.

Even more concerning is that only 37% of small businesses wanting to borrow money actually believe they will get it, reiterating the lack of confidence many of our SMEs feel.

In the same way that Mr Osborne has been planning with his team of advisers – I always stress the importance of planning and preparing a budget to my clients.

At least two months before each financial year begins, businesses need to forecast their income, spend and profit. Planning is an essential part of any business strategy to ensure any pitfalls will be uncovered.

Planning will enable a business to prepare a budget for the next 12 months and establish how much cash is needed to support growth – cash is the most important number to focus on so cash flow forecasts play an integral part of any SMEs’ strategy.

It is important to set a sales and profit figure so that there is a clear vision of where the business is going. But be warned, while a sales budget can give a realistic idea of sales growth, if has been produced by a sales person, the chances are it will be wildly optimistic and will need careful scrutiny.

A boost in sales will prompt the recruitment of staff but this should already have been taken into account when preparing a budget. Effective planning will advise of the outlay required and also the cost of not recruiting quickly enough.

Comparing the budget to the actual business performance will give a good insight into profit margins and allow action to be taken if these are not where they ought to be.

Whilst it may be assumed that all organisations are adopting these strategies, they are not. I once encountered a prospective client who advised me that despite being in business for 23 years, he had never put together a budget. A move I advised was unwise.

Ultimately, a good business is all about growing profitable sales, staying ahead of the competition and knowing which products are losing money and making money.

Many SMEs believe the recovery of the UK economy will boost their growth – however it is important that they take action within their own businesses to plan effectively.

Finally, while a budget is crucial, it is important to remember that it is not about being 100 percent accurate but about being in a better position to predict - and manage - the future.

Russell Smith is the managing director of Leeds-based Russell Smith Chartered Accountants. His areas of expertise include accountancy for nursing homes, healthcare, dentists, opticians, insurance brokers, marketing companies, digital technology, website design, musicians and artists.

Russell can be contacted on 0113 394 4616 or at www.rsaccountancy.co.uk

This was posted in Bdaily's Members' News section by Russell Smith Chartered Accountants .