There is comfort in knowing if you take the time to do your business budget you have the power to eliminate excessive spending and create a faster cash flow positive business sooner.
It can really help you plan for whatever it is you want to do in your business.
A sad reality is that many business owners don’t have a proper budget in place. It can cause a lot of uncertainty, stress and added costs should payments be missed.
The key to creating an effective budget is knowing your numbers and not just guessing at what these are. Take a good look within your spending and earning habits.
Let’s not delay this task any further, here are five top tips to get you started.
- What is your actual generated income $$, recurring income and expected income?
- What are your Expenses, this includes recurring expenses and sundry costs?
(remember to look at your Depreciation, overheads, payroll and debt repayments
- Lastly, the Balance Sheet is the difference between what you own and what you owe. (value of the assets, cash at bank, outstanding remittances)
- The flipside of the balance sheet is Liabilities which will be your expenses, taxes and loans, and insurances.
- Superannuation obligations.
Our best advice is – Don’t wait until the new financial year to start budgeting – start as soon as you can. Pressing obligations are best tackled weekly, monthly, quarterly going ahead. Budgets should be set at least once per year, at a minimum. Always having your past year’s figures will show your spending and income patterns as a starting point of where you may need to fine-tune your new budget.
Some businesses like to factor in the most expensive debts first: “Pay the ATO first because they are the most expensive debt you’ll have. At 9.5 per cent interest if you pay late, it is a costly yet avoidable debt to have on your ledger.”
Becoming financially literate is very liberating. Once you have your budget in place and are watching your numbers regularly you can then start playing with your numbers. What if your sales increase by 10%? Have you thought of the outcome if you lose your biggest client unexpectedly or gain another large client, how this will impact your financial plans? There’s also a possibility this will give you more leeway in your negotiations that are pending, which will impact your bottom line as well.
If you have more revenue coming in than costs going out, you’re making a profit. If it’s the other way around, you’re making a loss. A loss is okay in certain situations, but losses aren’t sustainable over the long term.
To get support in creating a budget for your business, give us a call ASAP.
At VBA we specialise in strategic tax advice, offering tax and financial reporting for individual income earners, family businesses, tradies and construction companies.
Victor Bimrose Accountancy Pty Ltd (ASIC No. 1259423) ABN 53 010 957 294 is a Corporate Authorised Representative of Merit Wealth Pty Ltd ABN 89 125 557 002, Australian Financial Services Licence Number 409361.
Mark Foxley-Conolly (ASIC No. 1259421) is a Limited Authorised Representative of Merit Wealth Pty Ltd ABN 89 125 557 002, Australian Financial Services Licence Number 409361
General Advice Warning: This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.