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Money Matters by Henry Ong: Tips on making the annual budget

Here\\\'s practical advice on how to make an annual budget you can stick to
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Q: It's the start of the year, which means it's time to come up with  projections and budgets. Any tips on how I can make an annual budget that I can stick to?

A: Your best reference for this year's budget is your last year's actual expenses. Review your expenses last year and break them down into two groups: one group of expenses comprises those that are essentially uncontrollable because they are needed by the business such as electricity, rentals, salaries, and other fixed expenses. The other group of expenses includes those that you can control at your discretion, for instance, travel expenses, representation expenses, supplies, and others.

You can review each item in the first group and project any increases or decreases for this year. For example, will your landlord increase the rentals this year? If so, by how much? Are electricity rates likely to go up this year? To be conservative, you can make assumptions of certain percentage increases in some sensitive items.

For the second group, you can cut down on discretionary expenses if you think business is not likely to pick up in the first six months of the year.

For sales projection, you can again use your last year's figures as reference. You can assume certain percentage growth in sales this year depending on your industry outlook.

Once you have made up the annual budget, you should try to stick to it as much as possible and review it on a regular basis. Monitor how you are doing and make changes if necessary. It is important that you keep your budget flexible and realistic.

Henry Ong, CMC, CMA, is president and COO of Business Sense (www.businesssense.com.ph ), a business advisory firm that provides expert solutions to small and medium sized companies. You may reach him at hong@businesssense.com.ph or post your Money Matters question here . 

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