2017 Budgets – The most important thing you’ll do all year!
Have you prepared your 2017 budgets?
Have you ever received your business financial statements from your accountant and queried the profit because you ‘just couldn’t have made that much money’?
Do you have Tax Office debt because you didn’t have the funds to pay your BAS or year-end tax liability?
Do you stress about money and waste valuable time juggling funds on a daily or weekly basis to make sure your business can pay its bills?
These are all symptoms of not keeping a tight enough control of your cashflow.
Most of the clients we deal with manage their business finances by instinct. However, while instinct might get you by week to week, you will inevitably run into problems because, amongst a myriad of other things, instinct alone won’t allow for unexpected expenses or capital purchases.
The best way to ensure, as much as possible, that you are on sound financial footing is to prepare a budget for the year and there is no better time to prepare a budget than the start of the financial year which is right now.
If, however, you are going to invest the time in preparing a budget for your business, you may as well do it properly.
The 7 Keys
The 7 Keys
The 7 keys to preparing a budget worth having are:
- Get your financial statements up to date
When preparing a budget, it is essential that you have the correct starting point. That starting point is your current financial statements. The financial statements will also give you a good idea as to what expenses you have generally incurred in the past, which will help you to budget for them in the future.
- Examine how your cash flows, and budget accordingly
Remember that Sales and Cash In are rarely the same thing because customers don’t always pay straight away. The same goes for expenses. Determine how long it has taken for your customers to pay you in the past and factor this into your budget. Again, the same goes for your supplier payments.
- Factor in Stock Levels
Stock levels can be a significant drain on cash flow so you need to ensure that you budget for anticipated fluctuations in stock levels (e.g. stocking up before the Christmas rush can put a strain on cashflow, which would then return to normal levels after that stock has been sold).
- Budget for Capital Expenditure
Due to their size, capital expenditure can have a major effect on a business’ cashflow. What vehicles or equipment may you need to invest in over the next 12 months?
- Budget for Tax Payments
Tax payments are often left out of budgets prepared by business owners because they are not thought of as a business expense. However, tax payments are a major cash outflow for many businesses and are left out of your budget at your peril.
- Use Drivers rather than numbers plucked out of the air
In our experience, most budgets are prepared by plucking income figures out of the air. Instead, determine what the key income drivers are for your business and use these to generate your budgeted income figures. For example, 100 customers a week at an average dollar sale of $25 per customer equates to $2,500 income per week. This is so much more powerful than choosing some random income figure with no basis in reality.
- Regularly review actual performance against budget
One of the key benefits of having a detailed budget in place is that you can monitor actual performance against budgeted expectations. Doing this will allow you to proactively manage your business and make changes where necessary, so that you can make the most of opportunities, and small issues don’t turn into big problems.
Implementing a budget, when done properly, can be a complex, painstaking task, but can often be the biggest single step you take towards ensuring your business’ success.
We are experts with over 25 years experience in helping our clients grow and manage their businesses.
Call us on 07 5522 8400 to arrange a time to discuss the process of setting a working budget for your business.