As business accountants, we understand the importance of budgeting for the success of any business. A budget is a financial plan that outlines your revenue and expenses for a specific period of time. It’s an essential tool that can help you make informed decisions about your business and ensure you are on track to achieve your financial goals. In this blog post, I’ll discuss the benefits of preparing a budget, and provide some tips and examples to help you get started.
Helps you plan for the future
One of the biggest benefits of preparing a budget is that it helps you plan for the future. By creating a roadmap of your revenue and expenses, you can identify potential financial challenges and opportunities. For example, if you know that you have a large expense coming up in a few months, you can start setting aside money now to cover that expense. Or, if you anticipate a decrease in revenue during a certain period, you can plan to cut back on expenses during that time.
Provides a framework for decision making
A budget provides a framework for decision making in your business. With a clear understanding of your revenue and expenses, you can make informed decisions about hiring new staff, purchasing new equipment, or investing in new marketing initiatives. By aligning your spending with your budget, you can ensure that your business is operating in a financially responsible manner.
Helps you monitor your financial performance
A budget also helps you monitor your financial performance. By comparing your actual revenue and expenses to your budget, you can identify areas where you may be overspending or underspending. This can help you make adjustments to your spending and revenue-generating activities in order to stay on track.
Now that we’ve covered the benefits of budgeting, let’s discuss some tips and examples to help you get started.
Review your historical financial performance
Before you start creating your budget, take some time to review your historical financial performance. This can help you identify trends and patterns that can inform your budgeting decisions. For example, if you know that your revenue typically decreases during the summer months, you can plan to reduce your expenses during that time.
When creating your budget, it’s important to be realistic. Don’t overestimate your revenue or underestimate your expenses. Be sure to include all expenses, including fixed costs (rent, utilities,
etc.) and variable costs (materials, labor, etc.). And don’t forget to budget for unexpected expenses, such as repairs or emergencies.
Monitor your budget regularly
Once you’ve created your budget, be sure to monitor it regularly. Compare your actual revenue and expenses to your budget on a monthly or quarterly basis. This can help you identify areas where you may need to make adjustments to stay on track.
Now, let’s take a look at some examples of how budgeting can benefit different types of small businesses.
Example 1: A retail store
A retail store can benefit from budgeting by creating a sales forecast based on historical performance and market trends. By forecasting sales for the upcoming period, the store can plan for inventory purchases, marketing expenses, and staffing needs. The budget can also help the store monitor its performance in real-time, and make adjustments to inventory or marketing efforts if sales fall short of expectations.
Example 2: A service-based business
A service-based business, such as a consulting firm, can benefit from budgeting by creating a project-based budget for each client engagement. This budget can outline the estimated revenue and expenses associated with each project, including staff time, materials, and travel expenses. By monitoring each project’s financial performance, the business can ensure that it is delivering services profitably and on budget.
If you’re stuck with creating your business budget for the upcoming financial year, we’re here to help.
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.