Why have a budget?

It sets you a target against which to monitor your actual performance. It helps you know more about your business and the relationships between your income and your expenses.

What form should a budget take?

It will look like your annual profit and loss account but the figures are shown on a monthly basis. This way you can factor in growth or seasonal trends.
If there are different segments to your business, it may be worth showing them in your budget separately.

Should I link in my budget to my accounts?

Yes. Most accounting software systems allow you to input your budget. Your monthly accounts will then show your actual and your budgeted profits and the difference between them. The best method would be to prepare your budget on a spreadsheet but then transfer these figures on to your accounting system.

What about a cash flow forecast?

You may not need one but if you would find it helpful then it needs to be linked to your budget. You
may need to ask your accountant to help out with this.

Any other ways to use a budget?

If you are preparing your budget (and/or your cashflow forecast) on a spreadsheet, you could set up a “what if” scenario so that you could see the effects on your profit at different levels of sales or income.

If you need to borrow, you can use your budget and cashflow to demonstrate the need for the borrowing and how you plan to pay it back.