Why SMEs Need to Plan and Budget Better Than Bigger Companies

Budget May 2014

All successful businesses know that the tasks of business planning and budgeting can be stressful if not handled properly: What if we don’t generate enough revenue? What if we can’t retain our competitive advantage? What if our major supplier increases their costs? For SMEs, such concerns can be debilitating, if they become a reality. Even the smallest change can affect their revenue, as well as their future.

SMEs … make up 98% of all businesses and provide jobs for 66% of the labour force in Asia, but they represent only 38% of the region’s gross domestic product (GDP), indicating that governments can boost economic growth by developing SMEs.

 

How does effective business planning help SMEs?

SMEs can be at risk if they do not undertake regular and accurate planning and budgeting activities. Hoping to succeed, and wishing for the profits to increase are not sensible strategies. If an SME wants to grow, or even remain in the game, they need to get serious about their goals.

 

Benefits of business planning;

  • Provides an opportunity to review what’s not working, and put measures in place to change it; involving representatives from different departments will give a more holistic view of the situation. Also, seeking input from various heads of departments will foster a more collaborative and solutions-oriented approach.

    Conversely, this should also be the time to celebrate what has gone well for your business so far and identify ways of expanding this success elsewhere (e.g. your delivery times have improved by 15% in the past 12 months – how was this achieved? What can the rest of the business learn?)

  • Using an accurate picture of the financials, you will have full insight into the current state of the business. While you might have a sense for what’s happening, there’s nothing quite as useful as seeing it in plain figures for you to have the full picture. Did you perform better or worse than you thought? Do you need to cut spending in certain areas or can you make that much-needed investment into new machinery?

  • Gain clarity and focus for the future; whilst you may have set out to achieve a certain goal in your business, undergoing full business planning might reveal hidden strengths within your organisation that you had not previously realised; your whole business model could be turned on its head, for the better.

  • Greater confidence in decision-making – your business relies on a leader, or group of leaders, making informed decisions; whether to invest or not, when to expand globally, the best sales strategy, etc. None of these decisions can be made effectively unless you know the current state of your business and have the data to make the tough decisions, based on fact.

For businesses wanting to stay ahead, thinking globally is key, and the only way to expand your business, is to have a well planned out strategy first.

 

What should a good business plan include?

Some of the basics are listed below, but each business will have its own requirements for what their business plan should include.

  • Accurate financial picture of previous and current business performance and forecast for the future

  • Identification and risk review of potential changes within your market, industry, vendor base, consumer segment etc.

  • Success (or otherwise) of last year’s goals and the reasons

  • Objectives and goals for the future year with defined and measurable targets

  • Key Performance Indicators (KPIs) and results so far

  • Recent and current operational problems and steps to mitigate them

  • Employee, internal and resources issues faced and steps to mitigate them

  • Investment, merger or acquisition plans and expectations

 

How does effective budgeting help SMEs?

Estimating and matching expenses to revenue (real or anticipated) enables businesses to fund their daily operations, expand their business and increase their profit. Too much or too little expenditure can adversely affect the business and it’s a fine balancing act, particularly for SMEs facing tough financial times.

 

What should an SME business budget include?

Again, these are the basics but many SMEs feel they are still too ‘small’ to be worrying about these areas;

  • Financial sales performance against projections for past year(s)

  • Projected sales in current and next financial year

  • Total direct cost of sales (what are the costs incurred by you to deliver your product/service?)

  • Fixed costs and overheads (premises, taxes, vehicles, salaries, office equipment etc.)

  • One off capital costs (large purchases such as equipment or property
  • Revenues; current and projected

 

Considerations for SMEs when planning and budgeting

Business conditions for SMEs are always volatile, particularly when they do not have access to the right insights. SMEs in Asia are also at greater risk of being adversely affected by natural disasters. Future revenue and growth figures need to be based on current trends and consumer behaviour, but how do you capture this information? What tools do you use to ensure you have the right insights?

If your organisation has no current method of effective planning and budgeting based on real-time, accurate data, it might be time you consider an enterprise resource planning (ERP) platform, specifically for SMEs, such as SAP Business One. Contrary to a lot of opinion that ‘SAP is only for the big players’ – over 80% of SAP’s customers are SMEs.

 

How SAP Business One helps SME plan and budget better:

  • Record and analyse transactions, understand your customer’s buying patterns and pre-empt trends

  • Create budgets and budget scenarios to experience ‘what if’ conditions without the risk

  • Create secondary budgets based on the original one, to accommodate possible changes such as operations, human resources, natural disasters and put mitigation plans in place

  • Import from external files, creating a single version of the truth for your company

  • Budget at general ledger account level to gain even more in-depth and accurate financial insights

  • Generate budget vs expenditure comparison reports quickly, in a variety of formats

  • Leverage real-time data for accurate future business planning from all areas including customer location, market trends, seasonal patterns, vendor conditions and operational adjustments

 

SAP’s Business One solution for SMEs puts you in charge of your own business and takes the guessing out of business planning and budgeting. Talk to the friendly consultants at Blue Ocean Systems to make your next business plan and budget the springboard for your organisation’s growth and success.

 

Note: This story has also been adapted for publication in Steemit.

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