Don't set and forget: Why should you review your budget early?

Many businesses create a budget at the start of the financial year but fail to revisit it until it’s too late.

The start of the financial year is actually the best time to get ahead and assess whether targets are realistic and achievable. By carrying out your first budget review in the first couple of months of the financial year, you’re already ahead of the curve and can avoid missing details that could affect your cash flow later on.

Using your accounting software (such as Xero or FreeAgent), you can track variances and compare exactly how you’re performing against your budget. Knowing early whether your goals are feasible gives you time to put a data-driven strategy in place to help achieve them.

In this blog, I’ll break down the benefits of reviewing your budgets early and the actions you can take to make sure you’re in the best position to help your business grow.

The Benefits of Regular Budget Reviews

Reviewing your budget regularly has many benefits, including:

• Detecting Variances Early: If sales are below target, costs are rising faster than expected, or projects are becoming less profitable, you can flag these quickly before they become major issues.
• Validating Assumptions: Reviewing month 1 against budget will test the realism of your budget and the assumptions that informed it (such as growth and staffing costs).
• Forecasting and Planning: These checks will help you course-correct if necessary for future months and revise cash flow forecasts with greater accuracy.
• Stakeholder Confidence: It provides internal and external stakeholders (e.g. investors, board members) with assurance that the business is diligently monitoring its performance.

How to review your budgets (if you’re not already)

• Prepare a Clear Comparison Report: Showing your actuals against your budget.
• Understand Who your Budget is For: Do you use it to drive the business? Do you have team members who are responsible for part of the budget? Are they targeted and bonused on certain performance elements?
• Investigate and Document Causes: If performance differs from the budget, understand the root causes and determine whether short-term adjustments or larger strategic changes are needed.
• Separate One-Offs from Trends: Unusual variances can occur in businesses. However, repeated overspending or declining margins may indicate structural issues that require changes to pricing, staffing, or operations.
• Update your budget: If patterns emerge that could affect future months, you should then revise your budget accordingly.

Revising Your Budget

When reviewing your budget, you need to ask whether you’re underachieving or overachieving, and act accordingly.

• If you’re underachieving, how can you factor in the knock-on impact?
• If you’re overachieving, should you now recruit more staff?

All of these factors need to be taken into consideration.

Don’t wait until year-end to identify issues

Avoid making the mistake of creating your budget and ignoring it for the rest of the year. Setting and forgetting robs you of valuable opportunities throughout the year and exposes you to greater financial risk.

To grow sustainably, you should consistently monitor your financial performance and update your budget based on the latest, most accurate data.

The earlier you can set targets, the better position you will be in, including both the early stages of your financial year and the year-end.

We produced our free 12-month guide to smarter accounting to give you month-by-month advice on what you should be focusing on, all relative to where you’re at in the current financial year. You can find it here.

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If you’re looking to create a clear roadmap to support the growth of your business, get in touch.