Budget Analysis and Your Small Business

budget analysis

Budgeting is something that most adults take into account when making financial decisions. From a personal perspective, creating a budget is practical and commonplace. So, should the approach to budgeting differ at all as it relates to a business? How important is a budget to a company’s overall functionality? And are financial forecasting and budgeting the same thing?

These questions are important ones, especially for entrepreneurs today. In business, budgeting means creating a thorough financial plan that calculates future actions that should be taken relative to attaining and using resources. Proper budgeting is the backbone of any successful organization and should therefore be taken seriously. This is where a budget analysis comes into play.

A budget analysis is used to gain a deeper understanding of a company’s money – how it is spent, how it is managed, and if the budget is allowing for financial goals to be met. The ability to organize finances is central to business success and this is where strategic budgeting shines. Calling upon an accounting professional to conduct a budget analysis means leaning on their expertise to not only examine how productively money is being spent, but also to make recommendations for funding based upon their discoveries.

Accountants are best suited to perform a budget analysis. Whether in-house or outsourced, it is essential that cash flow is looked at with expert eyes. In doing so, you are positioning your company to function at optimal levels best suited for success.

Making the Most of a Budget Analysis

From revenues and expenses to cash flow and debt reduction, a budget takes into account actual numbers to determine the direction a company must go. While different by nature, a financial forecast is often used to create a company budget. However, budgets are always built with the understanding that flexibility is imperative. Things like fluctuating market conditions can drastically impact a budget. As such, many businesses conduct a budget analysis more than once per fiscal year.

A budget analysis takes into account three key elements:

  1. Available capital
  2. Estimated expenses
  3. Anticipated revenue

Beyond understanding where your company currently is financially, what expenditures are likely to come, and how much revenue the company is expected to take in, budgeting must also factor in things like KPIs (key performance indicators) and personnel. All of these variables combine to create a detailed financial picture. And, if done properly, will serve as a roadmap for the coming year.

Tracking where a company is financially is one of the most notable benefits of a budget analysis. In addition, this practice will serve to achieve things like:

  • Highlighting what departments to invest in and what product lines to focus on
  • Setting sales goals
  • Attracting prospective investors
  • Assessing bonuses and salary decisions
  • Streamline tax preparation

From the sales team to upper management, budgeting allows for everyone in the organization to get on the same page, aligning the company’s actions and goals. In addition, a budget lays the foundation for decisions that need to be made both today and tomorrow. Hiring an expert to conduct a budget analysis is critical to helping business owners run their companies successfully.

New, growing, and mature businesses face financial and operating challenges daily. At Ellrich, Neal, Smith & Stohlman, P.A., we have years of experience in all facets of tax and financial accounting. Are you looking to perform a budget analysis for your business? Contact our Miami or Palm Beach Gardens offices today to get started.