Another episode in the Q&A video series for SME’s and business leaders.
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Intro: I’m Stuart Ayling and in this episode of Q&A I’ll be speaking with Justin Hogg who is Founding Director at Right Source. We’ll be talking about budgeting for business, why it’s much more than just numbers on a page, and how you can use a budget to make smarter business decisions.
Stuart: I’m speaking now with Justin Hogg. Justin is the Founding Director of Right Source and he helps prevent businesses from running out of cash.
He provides the ability to have an honest conversation around financials and works with not-for-profits all the way through to multi-million dollar businesses and through these conversations Justin helps businesses to gain transparency manage their risk and importantly, ultimately make better decisions. So thanks Justin for being here.
Justin: No worries Stuart, it’s good to be here.
Stuart: OK excellent well look our topic for this brief chat is budgeting for small business. So what I’d like to do is get straight into it and really look at what is a budget . Isn’t it really just numbers on the page…like is it reality?
Justin: I suppose the important thing I find with a budget is it shouldn’t be just numbers on page. It should be a living document. It should be something that really reflects what your business plan is and really brings that down and refines that down into numbers, so it’s becomes something that’s a living document for the business.
Stuart: Ok ‘living document’ that sounds good and so how should a business owner be using the budget? How how does it ‘live’?
Justin: The budget it acts as a guidepost so it helps you navigate your path as a business. So in creating a budget you create a signpost along the way and by going back to that budget and reflecting on, whether you do it monthly or quarterly or daily, being able to understand if you’re still moving in the right direction and if you’re not, or if something changes and you want to change the direction you’re moving, being able to go back and reassess, and I suppose reposition that budget to set the next line of guide posts in your journey.
Stuart: OK excellent so it gives us a bit of a, those guideposts like you say, something to aim for. Ok so what process would you normally recommend that a business owner go through to set a budget because I’m sure people must miss certain steps so what’s what are the key things that people should be doing.
Justin: Key things is I suppose you do two things, one is you want to set your high-level goals like what are your aspirations what do you really want to try and achieve and for some people that might be a revenue target, it might be a volume target, it might be we want to open another office in another location. Some of the high level stuff.
Then you want to go back to what what are the core drivers of your business, and understand OK, is it that I sell widgets, or I provide a service on the hours how many employees and you actually want to start from both ends and bring them together so well this is what I want to achieve, and this is how I operate.
Stuart: How do those two things fit?
Justin: So quite often in a budget process you actually get to point we go “oh, I can’t actually do this with what I’ve got, so I have to change”. And that’s the value that budget process, it actually requires you to sit back in a little bit of a strategic mindset and go, well if I want to achieve all these things I have to change this in my operation.
And that gives you the clarity so then you know when you set those guide posts of where you going for you know how you’re going to achieve it and what you’ll achieve.
Stuart: Ok so really to use a budget to it’s maximum the business owner needs to be putting aside time to actually review what’s been happening and sort of compare that to the budget as you were saying to see are we still following the same guide posts or not. So they need actually, it becomes bit of a time management issue then?
Justin: Exactly and it’s really giving yourself and doesn’t take a lot of time, maybe it an hour or two a month to sit down go “well how we how have we gone to budget?” or to our guideposts? And if there’s a difference, if it’s not as you would expect, actually challenge the ‘why’ and understand the why you’re off. Because it might be something hasn’t gone to plan is that something that we’ll be able to fix along the way? Or is it something more fundamental which means we need to shift where we’re moving?
Stuart: Ok so, how does that budget actually get updated then, like if you’re saying it should be reviewed and sort of decisions made what happens to the budget? So what you’re saying then like the budgets a living document and you can’t really just set it and then say we’ve got our budget. What you’re saying is a budget sort of evolves over time is that right?
Justin: Absolutely. I think saying it is an annual budget, so we set a budget once a year and that’s it. I think that is a little archaic and you don’t get the value out of it. I mean we’ve got real-time reporting now, we’ve got so much data at our fingertips, to say that we’re going to set a budget and that’s going to be the same for the next 12 months.
It’s not taking full advantage of everything you’ve got out there. So really this is where you get into terms like a rolling forecast. So really every month you’re just re-tweaking that budget or that forecast for any assumptions that might have changed and that just helps you always have that future look as to where will I be in the next 12 months, or the next two years, however long that you want to budget for.
Stuart: Excellent, look we’re nearly out of time I suppose my final question then is for business owners looking at their budget and they need to make these changes, who should I be speaking to? Is it the sort of thing they should be able to do on their own or should they be speaking to someone on their financial support side?
Justin: It’s a combination of the two. If you have a good budget set up you should be able to do minor tweaks for the assumptions, like if you want to change the number of, like your charge out rate for an hour, or your pricing or something a small tweak in your business, obviously if you want to go “OK well we’re now going to move operations from Brisbane to Maroochydore and we’re going to set something different up”, well that’s probably where you want someone with a bit more indepth to actually make sure that the assumptions and the way your budget is constructed is done appropriately. And that’s where your finance assistant or your accountant should be able to help you.
Stuart: Excellent alright thanks Justin that’s all we have time for at the moment so I appreciate you sharing your expertise. So Justin from Right Source, thank you.
Justin: Thanks Stuart.