Planning what you will spend.
WHAT A BUDGET IS
A plan for income and spending over a period.
WHAT IT IS FOR
Deciding in advance, so decisions are not made under pressure.
WHAT TO BUILD IT FROM
Expected revenue Direct costs of delivering it Fixed costs Planned investment
WHAT DIRECT COSTS ARE
Costs that rise with what you sell.
WHAT FIXED COSTS ARE
Costs you incur regardless: rent, salaries, subscriptions.
WHY THE DISTINCTION MATTERS
It determines what happens when sales fall.
WHAT TO DO ABOUT REVENUE ASSUMPTIONS
State them, and be conservative.
WHY CONSERVATIVE
Optimistic revenue with committed costs is how businesses fail.
WHAT TO BUILD
A version based on likely revenue, and one based on substantially less.
WHAT THE SECOND REVEALS
Which costs you could actually reduce, and how quickly.
WHAT TO ESTABLISH
Your break-even point.
WHAT THAT IS
The revenue at which you cover all costs.
HOW TO CALCULATE IT
Fixed costs divided by the proportion of each sale remaining after direct costs.
WHY IT MATTERS
It is the number that tells you whether the month works.
WHAT TO REVIEW MONTHLY
Actual against budget, by line.
WHAT TO INVESTIGATE
Any material difference, in either direction.
WHY FAVOURABLE DIFFERENCES TOO
They frequently indicate something not yet recorded.
