Published on 27th June, 2019
Budget management is crucial to the successful running of your projects whether you’re a startup SME or big business. Applying the right skills and tools will help you to achieve your planned outcomes.
Luckily these are skills you can acquire, learn and build upon as a startup SME or big business. Our article addresses the importance of why you need to create and maintain a process with your budget management.
Finding strategies to maintain control of your budget and to prevent overruns will ultimately lead to your planned financial expectations being met.
Here are 3 key areas of strategy you can put into practice to manage your finances;
Managing your cash flow is what will keep your overall business health and project budgets on financial target.
Planning in advance for your cash flow with budget spreadsheets for your business and for each project will enable you to adjust, freeze or reduce where it is needed.
As a startup SME you may not have had experience with budget spreadsheets, but you may already understand what it means and why you need it.
Firstly, identifying your goals and objectives is vital when deciding how to layout your budget and in knowing how you are going to plan and achieve them.
Forecasting budgets a year ahead and carefully doing so for each project you run, will enable you to keep a track of any contingencies that you may have to adapt for.
You’ll need to have a degree of flexibility with your budget and plan for contingencies. These are usually things outside of your control; where perhaps a supplier can’t match the costs or an unexpected cost occurs.
By doing this you enable your SME to be able to adapt and change without sliding costs creeping in. If you regularly check to ensure your project budget management is on track, you can prevent contingency increases.
As a big business, your project management skills will be put to the test.
Effective management and planning of your budgets will determine your outcome.
Don’t be afraid to seek advice from: mentors, staff with experience in their area, those that may already have been in your position, and guidance from pre-existing budget spreadsheets.
As a larger business, you may need to understand any stakeholder positions and expectations along with suppliers. This will ensure you’re being realistic with your budget planning. Plan for weekly reviews, rather than the once when you create your budget. Put yourself in a position of strength and plan for every eventuality.
You’ll find it easier to plan with greater impact by understanding and utilising KPI’s (key performance indicators) within your project budget. You can use these to look at your actual cost vs your cost variance and to also show your return on investment (ROI).
It is far easier to allow and budget for a 10 percent planned contingency than to have to find an additional 50 percent of unforeseen costs.
Factoring in and preparing for every eventuality outside of your control is a key aspect to budgeting for example: watch out for rising staff costs, supplier pricing, resources, product and service charges etc.
Ideally, you’ll want to keep any capital expense costs to a minimum where possible. Operational and discretionary budget items can usually be taken out or stopped should changes in your business or project crop up.
Your budget management will have a direct impact on your bottom line whatever the size of your business. This is your net profit at the end of your budgeting year or your project. This is what will financially determine your success.
Keeping a close eye on your budgets as an SME and big business throughout the course of your financial year and for each project will be a useful tool in being able to respond to those unexpected expenses.
Being able to successfully create and maintain client retention will come down to how you manage and budget as a business.
Nurturing and fostering relationships is, of course, important, but if you don’t offer value and reliability then you’ll soon lose the faith of your customer.
As a startup SME, effectively managing your budget is what will ensure your costs align with what you produce. Your budget needs to not only deliver on the promised cost but also in the end result –– your product.
Be honest and realistic with your clients from when you begin about what you can achieve, timescales and what costs they should expect to pay. If you build into your budget a planned contingency (usually around 10 percent) then you have room for the unexpected.
A contingency will plan for all sorts of changes such as escalating costs, quote obligations from suppliers not met and the unknown. Remember that no company has an unlimited budget so plan carefully and keep on top of and document all costs and changes.
Big businesses will also rely on reputation and will know it’s what will drive retention and additional business. You want to ensure all parties involved are accountable.
If you have more than one department, let them know the role they play. This includes your suppliers too. Creating accountability through ownership in each department you have or the supplier’s role, equals more accuracy in your budget.
You don’t have to know everything and have all of the answers, but you need to be able to source them and keep the channels of communication open with your customers. If any aspect of your project changes then let them know and say exactly how you will resolve them.
Communicating changes and their impact to your clients as an SME or big business is what will build good relationships. However, not managing your project budget correctly could be the leading cause of those business relationships ending.
Don’t underestimate the value of budget management with your clients. To retain the value your clients see in you, ensure you deliver and communicate as you’ve promised.
Where you can you should aim to vet all of your suppliers before you start work with them. Do your research and plan for surprises on all of your projects. Always have a backup plan in case you’re let down.
Sometimes suppliers can come up against product shortages or are unable to meet the quote obligations that they’ve agreed. Forecasting with this in mind will help you to plan if in the event your supplier does let you down, or can’t maintain their commitment to you.
Make sure you document and create change orders that state revised plans to all parties that are involved, and keep these together with each project file that you put together.
No business has a budget to swallow large unexpected and continuous costs so stay in control and on top of your suppliers. Use your budget to manage every aspect and factor of the process.
Sometimes the original price from your supplier may have changed due to their vendor costs increasing. Exchange rates and market demands can also sometimes account for these changes.
The best way to manage any change is by being prepared and budgeting for it at your original project budget forecasting stage.
Being realistic with your costs when planning for your projects is crucial to keeping your supplier costs within your budget parameters. Where possible always seek confirmed costs if you’re able to and add on a contingency to this cost.
Use your KPI’s and add in actual costs and variance costs as soon as you have them to hand. Keeping your budget fluid and flexible will enable you to stay on track and prevent spiraling costs.
Check-in with your suppliers on a regular basis to ensure they’re able to deliver as promised and their supplied costs have remained the same.
How you as a startup SME or big business handle your budget and manage unplanned changes, will help you to watch out for escalating costs.
The scale of your budget management will vary from a startup SME to big business, but the principle focuses will remain the same. How you forecast and manage your budgeting process for each coming year and each project –– will determine your success.