A budget for your business is a crucial part of EzyAccounts’ business advice sector!
Did you know that budgeting can actually help you increase your business’s profitability? Here’s why…
What is a Budget?
A budget is an estimate or prediction of your business’s income for a set period of time (week, month, quarter, etc.), and an estimate of your business’s expenses for that same period of time. In other words, it’s a record of what you expect your business to earn, and a plan for how you will spend your business’s money.
Why do I Need a Budget?
Budgeting helps you to balance your business’s expenses and income so that you aren’t spending more than you’re earning. However, in order to get the most out of budgeting, you also need to identify and analyse any budget variances.
What is a Budget Variance?
A budget variance is the difference between your business’s forecast expenses or income, and the actual amount you ultimately spend or earn.
For example: when creating a budget, you may record that you expect to spend $1,000 on your business’s monthly Google AdWords campaign. If you spend $900 instead, this is a variance. Similarly, spending $1,500 on AdWords would also represent a budget variance, as neither figure matches the one you predicted.
What is Variance Analysis?
Being aware of your variances is certainly useful, but the real value lies in analysing them.
A variance analysis looks at the variances between your projected and actual spending, and analyses potential explanations for how and why these variances occurred. You can conduct a variance analysis yourself, but if you run a bigger business, it’s a good idea to get a properly trained and qualified professional to do it for you. As experts in their field, they will be able to identify solutions and explanations that you wouldn’t be able to come up with yourself.
Why do I Need a Variance Analysis?
A professional variance analysis puts the power to grow your business firmly in your hands, as it can help you identify problems that require your attention. By addressing these problems, you can then increase your business’s profitability in a wide variety of ways, including cutting costs or even spending money on newly-identified opportunities.
For example: some businesses notice a variance between projected and actual spending on fuel costs for their business fleet. In analysing this, a range of explanations can be identified. These may be simple and point to an unavoidable factor (e.g. employees had to travel more regularly than normal that month), or they could draw attention to processes that require refining and standards that need enforcing (e.g. staff using vehicles for personal transportation). Either way, your variance analysis will help you to implement positive changes that increase your business’s profitability.
Invest in Success
By conducting a regular variance analysis, you can turn your business’s budget into an investment, rather than an expense.
If you would like to implement a budget variance analysis, or simply want some FREE initial advice, contact us at EzyAccounts today, or call us on 1300 313 397. We look forward to hearing from you soon.