Why do a budget?
Is my business making money? Will I have enough cash to pay expenses when they are due? Will I be able to grow my business and increase my salary this year?
Like most small businesses, if you find yourself pondering the above questions, then the preparation of an annual business budget is essential.
We believe that all businesses should prepare an annual budget, and the best time to do this is now before the new financial year begins.
To assist you in preparing a budget, we have developed the following simple steps to guide you along the way:
- Create a template in excel or csv based on your profit and loss chart of accounts. Most cloud software, such as Xero enable you to export a budget template.
- The model should be month by month and you should consider seasonality, this means if you make more sales in summer than winter, then have your best guess to estimate the revenue accordingly. Do not just divide by 12 months.
- You should always be realistic in your estimates and if in doubt be conservative. A standard error made by many businesses is setting targets that are not achievable only to fall well below the expected results each month, which can harm motivation.
- Draft a budget then upload the final version into your accounting software so that you can report Actual vs. Budget results, and always remember to regularly review the results and make adjustments in your business to address any variations/issues.
By preparing your budget, you will achieve the following benefits:
- Gain a better understanding of your business as a whole. The strategic aspect of the budget preparation process forces business owners to think about the way their company operates.
- This is an excellent opportunity to understand your chart of accounts better. The start of a new financial year is a great time to make any amendments, so the way the numbers appear best reflects how your business operates.
- Be able to plan for the estimated taxation liabilities as well as prepare a cash flow statement to ensure you can always meet your debts when they fall due.
- Enable you to decide whether you can take on future projects and whether these projects are likely to make you any money.
- Allow the successful control of departmental spending within your business. By setting targets, managers will understand what they are allowed to spend and have to explain any variances.
- Have one of the most important things a business owner seeks, peace of mind and the ability to anticipate and react to problems.
If you have any questions or require some guidance with the process, please don’t hesitate to contact your Account Manager.
Keeping Company is a team of experts; Cloud Accountants, Business Advisors, Finance Specialists working together to provide a complete solution for the Australian Small to Medium Business owner.
The information provided here is general for Australians and should not be your only source of information. We recommend consulting an experienced Chartered Accountant or Registered Tax Agent as each business’s circumstance will vary.
For all media enquires please contact Tracy Miller, CMO, Keeping Company 0414 898 452.