This is general information, not tax or legal advice. Rules and rates change, so check GOV.UK or ask an accountant.
A budget is your plan for income and costs over the year. Without one, you only find out how you did after the money has gone. With a simple one, you can spot a shortfall in time to act.
Step 1: start from real numbers
If you have a year of records, start from last year’s actuals. It is quicker than a blank page and it carries your seasonality with it. If you are new, use your best estimates and quotes you have received.
Step 2: keep the detail you will review
A handful of key lines beats a hundred nobody checks. A sensible set for most small firms:
- Income, split by main service or product.
- Cost of sales or direct costs.
- Wages and contractors.
- Rent and utilities.
- Marketing and software.
- Professional fees and insurance.
Step 3: adjust for what you know
- Price rises and new customers.
- Lost customers or ending contracts.
- One-off costs, such as equipment or a refit.
- Seasonal peaks and troughs, month by month.
Step 4: be a little cautious
Budget income slightly low and costs slightly high. It is better to beat the budget than to miss it. Do not forget tax: VAT, income tax or Corporation Tax will need cash, as will any loan repayments.
Step 5: compare every month
- After each month-end, run budget against actual.
- Look at the biggest variances first.
- Ask why, not only how much. Was it timing, a one-off or a trend?
- Adjust your plans, and if needed, the forecast.
See the month-end close checklist and a 13-week cash flow forecast. A budget tells you what you plan to earn and spend. A cash flow forecast tells you when the money actually moves.
Common mistakes
- Making it too detailed to maintain.
- Setting it once and never looking again.
- Ignoring tax and loan repayments.
- Confusing profit with cash. See profit vs cash flow.
How AvrioBooks helps
Create a 12-month budget in a grid, start from last year’s actuals, budget by segment, and run Budget vs actual to see variance for every account. See budgeting software and the guide budgets.
Frequently asked questions
How do I start a budget?
Start from last year's actuals if you have them, keep a handful of key lines, and adjust for known changes.
How often should I compare budget with actual?
Every month, after you close the month.
What is the difference between a budget and a cash flow forecast?
A budget is your plan for income and costs over a period. A cash flow forecast shows when the cash will actually move.
Can I do this in AvrioBooks?
Yes. Create a 12-month budget, copy from last year's actuals and run Budget vs actual.
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