Your budget allows you to compare your plans with real dollars-and-cents results. By budgeting, you can see problems before they happen and take appropriate action to solve them.

Undertake regular profit and loss budgets

It's preferable to budget each month for 12 months. This takes into account monthly and seasonal trends in sales and expenditure.

The profit and loss (P&L) budget does not reflect your cash position. It contains non-cash items, such as:

• depreciation
• creditors you haven't paid
• invoices raised that you haven't received cash for.

The P&L budget also excludes any loan payments. When you've completed your profit budget, assess your cash-flow forecast to determine if you have sufficient cash to meet your debts as they fall due.

Use the information wisely

It's crucial to have accurate and timely financial information and to understand what the information means. Otherwise, you won't be able to detect major budgetary changes quickly, take early action to correct problems, or capitalise on the successes.

Budgeting and cost control

There are two very useful tools that can help you ensure your business makes enough profit for your needs and allows you to pay your suppliers on time.

The budgeting and cost control tools

• The profit and loss (P&L) budget: helps you identify, monitor and control your sales and expenses, so you can maintain and increase your profits.
• The cash-flow budget: helps you make sure you have enough cash to operate and pay your business debts.