Financial Guide for SMEs - SME Corporation Malaysia

Financial Guide for SMEsAn annual budget preparation policy should be documented and followed, andcould include some or all of the following steps:1.2.3.4.5.Review the approved strategic plan and record all required activities for thebudget period.Separate activities into existing and new for the new budget period.Identify and document all assumptions that have been made for the budgetperiod.Review the income statement in the previous year by regular period (monthly,quarterly etc.).Prepare the profit and loss budget for the selected period using all the stepslisted above.TIPAn independent profi t and loss budget can be developed forseparate projects to assess the fi nancial viability of each projectAssumptionsTo ensure that your budget will be a useful tool, youneed to spend some time planning on what you thinkis going to happen in your business in the future.As you are preparing your estimates on incomeand expenditure, you will be estimating how yourbusiness will operate in the future and these arereferred to as assumptions. When determining yourassumptions, it would be best to use realistic targetsthat you believe will be achievable. Using your historicfi nancial information and looking for any trends in thisinformation is a good place to start. Also, any industryinformation provided by independent reputablecompanies will give your assumptions credibility. ThisHINTAll assumptionsmade during theplanning processof preparingbudgets should berealistic anddocumentedis particularly useful when you are going to provide your budget to a potentialor current lender or investor.Make sure you write down all the assumptions and then establish a fi nancialnumber that reflects the event. Once you have completed the table ofassumptions, attach them to the budget. This way, you will remember whatyou anticipated to happen and when reviewing your budget against the actualfi gures, this will help to determine why the actual results may not be the sameas your budgeted numbers.33Chapter 2-5 p22-65 Eng.indd 338/15/11 5:01:53 PM