Three in ten (29%) business owners said that they under-budgeted their entire forecast in the last financial year according to a new survey by Capital on Tap.
60% of small business owners say it's becoming more challenging to keep to their business' budget because of the UK's economic downturn. But what are SMEs' budgeting habits, and how have these changed since the UK went into a recession?
To find out, small business credit card company Capital on Tap surveyed 250 small business owners to find out where businesses are most likely to over, and under, budget and how often different industries are re-forecasting.
The survey shows it can be difficult to forecast correctly, with 29% of small business owners saying they under-budgeted their entire forecast in the last financial year, admitting shortfalls across all projected expenses.
A further 31% of business owners said they under-budgeted utilities and maintenance fees, potentially due to fluctuating energy costs. Plus, 28% of small business owners under-budgeted equipment and technology costs.
|
Business expense |
% of all business owners that under-budgeted for this |
|
Utilities and maintenance costs (e.g electricity and gas) |
31% |
|
Equipment and technology costs |
28% |
|
Shipping and import or export fees |
23% |
|
Advertising and marketing |
23% |
|
Transport and logistics expenses |
22% |
|
Insurance premiums |
22% |
33% of small business owners have over-budgeted for HR consulting or outsourcing costs
HR and consulting was the most over-budgeted expense for small business owners (33%), with all industries over-budgeting by an average of 8%. This may be due to initial setup costs for outsourcing contracts leading to higher budget estimates.
Shipping and import or export fees (32%) was the next most over-budgeted expense, followed by loan payments (31%).
|
Business expense |
% of all business owners that over-budgeted for this |
|
HR consulting or outsourcing costs |
33% |
|
Shipping and import or export fees |
32% |
|
Loan payments |
31% |
|
Research and development (e.g market research or product development) |
31% |
|
Office space rental deposits |
31% |
The sales and marketing sector re-forecasts their budget 30 times annually — the most of any industry
Our research found that 46% of all small businesses review their budgets at least once a month, providing a good benchmark for other small business owners. But, in terms of industry, the sales and marketing sectors are reviewing their budgets the most (30 times per year). Additionally, travel and transport businesses review their budget an average of 24 times each year.
The sectors reviewing their budgets the least are the hospitality and entertainment and events industry, both re-forecasting an average of five times a year.
|
Industry |
Average no. of times per year business owners from this industry re-forecasts their budget |
|
Sales and Marketing |
30 |
|
Travel and Transport |
24 |
|
Education and Tutoring |
14 |
Over half (56%) of entrepreneurs said that the recession has negatively impacted their business' revenue and profitability
60% of small business owners said that keeping to their budget has become more challenging because of the recession, and a further 56% said the recession has negatively impacted their business' revenue.
In terms of industry, a staggering 70% of business owners in the entertainment and events, and technology and IT services, industries plan to re-forecast their budget because of the recession.
|
Industry |
% who plan to re-forecast their budget, or have done so, due to the recession |
|
Entertainment and Events |
70% |
|
Technology and IT Services |
70% |
|
Sales and Marketing |
63% |
|
Arts and Crafts |
59% |
|
Personal Care |
Rebecca Alford, Finance Director at Capital on Tap, provides top tips on how to create a budget.
"Forecasting a financial plan for the year ahead is a vital tool for shaping your business' strategy. The most successful forecasts look at ingoings, outgoings, and potential changes in the industry landscape and help a business to prepare accordingly.
"The business world changes rapidly, and the landscape can shift at a moment's notice. If your budget is unable to adapt to these changes, you might find that your business will struggle.
"Another helpful tool is to use a business credit card. This can help to streamline cash flow management for SMEs, while a line of credit can help cover unexpected costs that aren't accounted for in your budget.
"A contingency fund is essentially a buffer that can be used to cover any unanticipated expenses. It might seem unnecessary at first, but it gives you peace of mind that you're ready for any unexpected changes and have something to fall back on."
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Top five tips to successfully forecast your business' budget in 2024
Rebecca Alford, Finance Director at Capital on Tap, provides top tips on how to how to navigate budgeting during a recession.
1. Be flexible
"Keeping your forecast flexible means you have room to change, expand and deviate slightly if you need to. The business world changes rapidly, and the landscape can shift at a moment's notice. If your budget is unable to adapt to these changes, you might find that your business will struggle. Remember, a forecast is made up of best guesses. Your situation may change, so you should be prepared to alter your financial plan in line with your business.
"Another helpful tool is to use a business credit card. This can help to streamline cash flow management for SMEs, while a line of credit can help cover unexpected costs that aren't accounted for in your budget."
2. Create a detailed budget
"Breaking down your budget into specific sections is essential - the more specific, the better. Be realistic with your estimates, and use your past spending patterns to inform your decisions.
You can look at the most common under-budgeted business expenses and the most common over-budgeted business expenses, analysed in our latest study."
3. Effectively delegate financial responsibilities
When separating your finances by various teams, delegating responsibility is important. There is nothing more valuable than having several sets of eyes on something as detailed as a budget. The goal is for your plan to work as a cohesive whole in addition to satisfying each team's needs."
4. Re-forecast regularly
"As mentioned, where you allocate your business's funds is likely to change throughout the year. Small business owners can keep up with the constantly evolving landscape by reviewing performance regularly. As shown in our survey 30% of people review their budgets once a month, and this is a solid starting point.
Keeping an eye on your business's spending patterns and adjusting accordingly can help prepare you for the year ahead by proactively managing deviations to budget before they hurt your cash flow."
5. Create a contingency fund
"A contingency fund is essentially a buffer that can be used to cover any unanticipated expenses. It might seem unnecessary at first, but it gives you peace of mind that you're ready for any unexpected changes and have something to fall back on."
Post made possible by Francesca Ferrari of Kaizen for Capital on Tap.
